China’s fiscal spending spree to be bolstered by ‘very special’ 1 trillion yuan payment from central bank

Such payments, while typically not so high, are required by law in China but had been suspended for two years to help institutions cope with the pandemic downturn

Fund transfer is in line with Beijing’s monetary policy loosening, and investment bank says: ‘This year’s fiscal expansion has rarely been seen in the past decade’

Reading Time:4 minutes

The People’s Bank of China will make a 1 trillion yuan payment that will help fund Beijing’s fiscal-expansion goals, such as by supporting businesses and lowering local debt levels. Photo: AFP

Published: 4:30am, 10 Mar 2022Updated: 6:09am, 10 Mar 2022

The sudden announcement that China’s central bank will transfer 1 trillion yuan (US$158.3 billion) to help fuel the government’s fiscal-expansion goals has given rise to questions about the breadth of Beijing’s policy toolkit.

And analysts are wondering what policymakers’ next move might entail if economic expansion – more government spending – fails to meet Beijing’s expectations.

Experts tend to believe this is just one of many reserve tools that Beijing is considering as it attempts to defend its national economic growth target for 2022 of 5.5 per cent – a figure that could be threatened by a protracted war in Ukraine, as well as by lingering tensions with the United States and European Union.

“It’s a coordinated loosening of both fiscal and monetary policy,” China International Capital Corporation (CICC) wrote in a note on Wednesday. “This year’s fiscal expansion has rarely been seen in the past decade. It will be a key tool to stabilise growth.”

Although authorities have budgeted for a 2.8 per cent fiscal deficit, less than last year’s 3.2 per cent, and kept the quota for local special-purpose bonds – which are funnelled into infrastructure spending – unchanged at 3.65 trillion yuan, they have also vowed to increase support for the national economy.