Sustainable economic steps, steady output resumptions fuel growth

China's fiscal revenue rose 4.3 percent year-on-year in July, the second consecutive month of growth, as the country's economy continued its recovery from the novel coronavirus epidemic and local government debt continued to shore up investment, the finance ministry said on Wednesday.

The growth in fiscal revenue was largely a result of output resumption and sustainable economic growth, the ministry said.

Tax revenue rose by 5.7 percent last month thanks to the rebound in industrial output, fixed-asset investment and industrial profits since June, the data showed.

To sustain the economic recovery, the government enlarged its spending by 18.5 percent in July, compared with a year ago, in order to directly channel the funds to the prefecture－and county-level governments and inject capital into key construction projects, the ministry said.

"The implementation of proactive fiscal measures should further speed up, and the local governments need to accelerate the revision of fiscal budgets, so that the policies can directly reach the grassroots level and benefit enterprises," said Wang Hongju, senior researcher with the National Institution for Finance and Development, a think tank.

"The top priority is to help small and medium-sized firms and low-income people to tide over the difficulties due to the impact of COVID-19," he said.

By the end of last week, local governments have issued special bonds totaling 2.56 trillion yuan ($370 billion), accounting for 72 percent of the available quota, up 51 percent on a yearly basis, the Ministry of Finance said. The funds raised by the special bonds have been injected into areas like transportation infrastructure, energy, agriculture, forestry and water conservancy, ecological and environmental protection projects, livelihood services, cold chain logistics facilities, municipal and industrial park infrastructure.

During the second half, analysts expect the government to carry out what it planned in the first half on scheduled budget and government bond issuances. But if COVID-19 spreads faster overseas, the global recession would drive down external demand and fiscal policies need to be adjusted to offset the mid-to long-term negative impact.

This year, China issued 1 trillion yuan of government bonds for COVID-19 control and increased the deficit by 1 trillion yuan, as extraordinary measures during the epidemic period. Authorities required the funds to be transferred in full to local governments through a special transfer payment mechanism that ensures the funds go straight to prefecture－and county-level governments and directly benefit businesses and households.

Raising the annual fiscal deficit ratio or adding new quota of the special treasuries is likely to ensure people's livelihood and expand domestic demand, if the economic shocks sustain, Wang said.