Caixin
Feb 20, 2020 06:29 AM
ECONOMY

How Will Delayed Legislative Meeting Affect Government Spending?

Photo: Bloomberg
Photo: Bloomberg

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As China considers delaying the annual meeting of its top legislative body amid the coronavirus epidemic, one big question is how such a rare move would affect the nation’s fiscal policies at a crucial time for supporting a faltering economy.

The annual session of National People’s Congress (NPC) and a parallel meeting of the country’s top political advisory body is the most important annual political event in China. Gathering nearly 3,000 delegates from across the country in Beijing, the annual NPC meeting passes legislation, approves the national budget and sets key economic targets for the year.

This year’s NPC meeting is scheduled to start March 5 and last about 10 days. But as China grapples with a deadly epidemic that has sickened more than 74,000 people, lawmakers have suggested delaying the session. A meeting for a decision will be held later this month, the official Xinhua news agency reported Monday.

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A postponement would be the first since 1995 when China adopted the current March schedule for the legislative meeting. It would mean delayed approval for the national budget, fueling concerns over the consistency of fiscal policies to bolster growth.

However, there’s little sign that a delayed NPC meeting would significantly disrupt China’s fiscal policy implementation, although it would leave the closely watched annual growth target and budget deficit ratio unanswered. Economists have widely projected that this year’s NPC meeting would approve a higher budget deficit to spur growth.

It is unclear how long the annual sessions may be delayed. Analysts said the schedule shouldn’t be postponed for long as doing so might still disturb budget arrangements and fiscal policy implementation.

China’s Budget Law stipulates that central and local budget drafts must be reviewed by the annual NPC meeting before government departments can start spending, although lower-level governments’ budgets are subject to approval only by local legislative meetings.

As of February, most local governments completed this year’s local legislative meetings and reviews of local budgets, except the southwestern provinces of Yunnan and Sichuan as well as several county-level cities.

The central budget plan subject to NPC approval will decide how much money the central government will transfer to local authorities and the pace of local government bond issuance.

A delayed budget review may bring little disruption to fiscal policies, some experts say. That is because in practice the central government often informs local authorities beforehand of estimated transfer payments they can expect for the coming year so that local governments can work out their budget plans.

Part of the transfer money will also be sent to local governments before the new year starts, local fiscal department officials told Caixin. This year, about 70% of central government funding has been allocated to local authorities and can be used once local legislators approve, they said.

Data released by the Ministry of Finance showed that the central government has allocated 2.44 trillion yuan ($349 billion) as general funding to local governments in 2020. In addition, several hundred billion yuan of special funding has also been sent to local authorities.

A delayed NPC meeting may hinder some projects that require special approval for central government funding, a local fiscal official said.

Since the Covid-19 outbreak, the Finance Ministry has allocated more than 20 billion yuan of special funds to support local governments’ fight against the deadly virus.

The delayed budget review won’t affect local governments’ bond sales very much as the State Council, the cabinet, started allocating a major part of the bond quotas as early as November, leveraging authority granted by the NPC.

Annual debt quotas were originally issued after approval by the annual NPC meeting in March, but the legislature’s standing committee passed a bill in December 2018 allowing the Ministry of Finance to assign as much as 60% of the quotas early to push more spending into the first quarter of the year and help local governments better plan their budgets.

So far, the cabinet has assigned 1.848 trillion yuan of bond quotas to local governments to bolster local economies.

Local governments have maintained a steady pace of bond sales so far this year despite the virus outbreak, Finance Ministry data showed.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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