China’s top leaders have kept their official deficit target below 3%, partly through belt-tightening, as a gesture to deter excessive borrowing as the nation fights debt on multiple fronts. Yet it has also given way to all types of off-balance sheet borrowing, a problem S&P Global Ratings said may re-emerge this year.
Signs of more proactive fiscal policy have already appeared. The Ministry of Finance allowed local governments to sell more than 1.8 trillion yuan ($258 billion) of debt before the annual budget has been approved. The ministry has also announced targeted tax cuts to help companies and households hit by the virus, partially waived social security premiums or delayed taxes.
“Fiscal policy ought to be counter-cyclical, and the tension between revenue and expenditure shouldn’t be a reason to constrain it,” said Xu Gao, chief economist at BOCI Securities Ltd. in Beijing. “The government should increase the fiscal deficit to cope with the virus, and ease spending pressure by selling more debt.”
Economic activity in much of China has ground to a halt. Factories are struggling to get back to full capacity, where they can open at all, and consumer confidence has taken a significant hit so discretionary spending is cratering. That is particularly true in the leisure and travel sectors. There was news today that casinos in Macau are now allowed to open again but it will be a while before consumers have the confidence to go back. We were at lunch with another expat Asian couple yesterday and they are going to skip visiting Asia this year. That’s a pretty common reaction to the evolving scenario. Most people’s conclusion is why take the risk?Click HERE to subscribe to Fuller Treacy Money Back to top