To counter the economic shocks caused by the novel coronavirus outbreak, China will rely on extensive fiscal measures and maintain a flexible stance on monetary policy, according to signals in the Government Work Report and the annual fiscal budget arrangement.
The Government Work Report, delivered by Premier Li Keqiang to the third session of the 13th National People's Congress on Friday, said the government set the deficit-to-GDP ratio at 3.6 percent or higher this year, with the deficit 1 trillion yuan more than last year.
In addition, 1 trillion yuan of central government special bonds will be issued to fund coronavirus control measures.
All proceeds of the special bond issuance and the rise in the fiscal deficit, totaling 2 trillion yuan, will be transferred to local governments, the report said.
It highlighted fiscal support for the economy, despite setting no GDP growth target, as the pandemic disrupts activity via a combination of domestic and external shocks.
The fiscal deficit ratio was set higher than the 2019 target of 2.8 percent.
Analysts said the phrase or higher, used in the report, is a new expression that may indicate a willingness to raise the level later if necessary.
In the face of uncertainty, Beijing has raised the local government special bond quota to 3.75 trillion yuan, or 3.6 percent of GDP.
The Government Work Report said the nation will maintain a prudent monetary policy in a more flexible and appropriate way. A variety of tools will be used, such as reductions in the reserve requirement ratio, interest rate cuts and re-lending, to enable broad money supply and aggregate financing to grow at notably higher rates than last year, it said.
Last week, the Ministry of Finance released fiscal data for April. Total budgeted revenue dropped by 15 percent from the same month last year, after a decline of 26.1 percent in March.
Meanwhile, fiscal expenditure growth jumped to 7.5 percent year-on-year from a decline of 9.4 percent in March, as China ramped up policy stimulus measures.
In the first four months, the government's general public budget income dropped by 14.5 percent from the same period a year ago, and tax income declined by 16.7 percent, the ministry reported.
Economists forecast that fiscal revenue growth may rise in the coming months, but the pace of recovery could slow significantly due to slumping external demand, the lagging impact of the coronavirus on corporate profits, and waivers and delays in tax payments.
Wei Benhua, former deputy administrator of the State Administration of Foreign Exchange and former executive director for China at the IMF, said the country is in a good position to use fiscal and monetary policy to counter coronavirus shocks.
Measured by any international standard, China's annual and cumulative fiscal deficits are much lower than those of developed countries, he added.
China still has the potential to mobilize resources to support the economy. For example, we could continue to lower the RRR, lower interest rates and inject more liquidity into the economy, he said.