Beijing vows to cut taxes, limit local borrowing
Finance Ministry's pledges point to more proactive fiscal policy to bolster growth
The Ministry of Finance pledged to offer greater support to job-creating small companies through tax and fee cuts, to regulate local government borrowings and to maintain a reasonable size of central government investment in infrastructure next year.
The pledges, made at the ministry's annual meeting chaired by Minister Xie Xuren yesterday, suggested Beijing would likely adopt a more proactive fiscal policy to support the economy.
The steps are in line with the policy tone set by the Central Economic Work Conference last weekend.
However, comments on curbing local government debt highlighted Beijing's concerns about risks in so-called shadow banking, a method used increasingly by city and provincial authorities to finance investment after regulators tightened bank lending.
According to estimates by Australia and New Zealand Banking Group, the mainland's shadow banking business might have reached 15 trillion (HK$18.5 trillion) to 17 trillion yuan, about 12 per cent to 13 per cent of the size of the mainland's formal banking sector.
In a statement on its website yesterday, the ministry outlined six main areas it would focus on next year, including making "structural cuts" for small companies. It also pledged to improve the country's income distribution system, partly to adjust policies related to salaries earned by employees in monopoly sectors.
Chinese Academy of Social Sciences deputy director Li Yang said: "As far as we know, fiscal revenue will see single-digit increases while fiscal deficits will widen markedly next year."
He did not say whether his knowledge was obtained from government agencies or based on his own estimate.
Barclays Capital expects fiscal deficits might rise to about 1.7 per cent of gross domestic product next year, from a planned 1.5 per cent this year.
But Xu Xiaonian, a professor at China Europe International Business School, said Beijing must make more thorough tax cuts. He also called on the government to stop using GDP or fiscal revenue to gauge local officials' performance.
The ministry said it would set up a mechanism to monitor the size of local government debt, include local governments' revenue and spending in budget management, and strictly control increases in debt. At the same time, the ministry said it would expand property and resources taxes, moves that analysts said would broaden local governments' revenue channels.
Huang Yiping, Barclays Capital chief economist for emerging Asia, said local government financing was "the most worrisome issue" in the economy.