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China to continue improving special transfer payment mechanism

Zhang Yue
Updated: Oct 21,2020 22:36

China will work to expand the coverage of directly funneled funds and improve the management of the funds, in an effort to enable more efficient use of fiscal funds through reform to better serve the needs of economic and social development, the State Council’s executive meeting chaired by Premier Li Keqiang decided on Oct 21.

The special transfer payment mechanism, designed to channel this year’s increased fiscal funds straight to prefecture and county-level governments, is an extraordinary measure in an extraordinary time, and an important innovative step in macro regulation. General Secretary Xi Jinping stressed the need to bolster macro policy buffers in coping with the COVID-19-induced shocks. He urged a more proactive and impactful fiscal policy and full delivery of all relief policies already issued to directly benefit market entities. Premier Li Keqiang emphasized that the newly increased funds must be utilized with more focus. Practices and experiences gained must be reviewed in a timely manner for any policy improvement.

It was reviewed at the meeting on Oct 21 that by the end of September, among the 2 trillion yuan in additional fiscal funds, 1.57 trillion of the 1.7 trillion yuan designated for localities had been delivered to primary-level government departments. With the replenishment of fiscal resources, local governments have been in a better position to deliver tax and fee cuts, secure jobs, protect market entities and people’s livelihoods, support major projects and poverty reduction, and perform their functions. In the first three quarters, new tax and fee cuts exceeded 2 trillion yuan.

Implementation of the sizeable-scale business support policies and the special transfer payment mechanism has secured more than 100 million market entities and nearly 9 million new urban jobs, playing a critical role in promoting steady economic recovery.

“The special transfer payment mechanism has played a critical role in enacting our relief policies on a sizeable scale. The highly effective approach should continue to be applied,” Premier Li said.

To meet the main development goals and tasks set for 2020, greater efforts will be made to maintain the consistency and effectiveness of macro policies and ensure implementation of the special transfer payment mechanism to put the funds to more effective use.

It is also important to explore, building on this year’s experience, establishing a regular special transfer payment mechanism and enable more efficient use of fiscal funds by advancing reform to better serve the needs of economic and social development.

“Normally, funding from treasury bonds is spent on designated projects. Yet this year we are facing a special situation. Funds raised from the special bond for COVID-19 control should cover more areas, including current expenditure programs,” Premier Li said. “But primary-level governments must ensure that their spending is well-calculated.”

Coverage of the directly funneled funds will be expanded. Transfer payments that can be directly distributed under fiscal responsibilities shared by central and local governments, eligible special transfer payments, and general transfer payments of subsidy funding to guarantee basic fiscal capacity at the county-level, can be included in the special mechanism. This will essentially ensure full coverage of livelihood subsidies supported by the central government budget, on-time and in-full payment of teachers' wages for compulsory education, and greater support for the functioning of primary-level governments.

“The mechanism should be further improved. The COVID-19 bond is a special step amid unusual times, and primary-level governments are responsible for principal repayments,” the Premier said.

The directly funneled funds will be better managed. Funding to be channeled through transfer payments can be allocated in advance as appropriate.

Government departments nationwide need to step up efforts to ensure that the funds are distributed in ways that are better calibrated, better regulated and more effective. The meeting required accelerating data opening and sharing among government departments, and enforcing rigorous monitoring over the whole process of the directly funneled funds.

“Auditing and monitoring must be stepped up to ensure that the funds are channeled to the most needed areas and are put into effective use,” Premier Li said. “No muddying the waters or fishing for profit is allowed.”