Spend­ing scru­tiny to step up sharply

New sys­tem to put fi­nanc­ing and in­vest­ment by cen­tral, lo­cal gov­ern­ments in the spot­light

China Daily European Weekly - - Front Page - By CHEN JIA chen­jia@chi­nadaily.com.cn

“It will en­cour­age lo­cal gov­ern­ments to use funds legally and in ef­fec­tive ways...” WANG ZECAI di­rec­tor of the Gen­eral Of­fice of the Chi­nese Academy of Fis­cal Sciences

The Chi­nese gov­ern­ment is build­ing a na­tion­wide sys­tem to mon­i­tor all types of gov­ern­ment in­come and ex­pen­di­ture un­der the bud­get, along with tight­en­ing reg­u­la­tions on in­fras­truc­ture in­vest­ment and lo­cal gov­ern­ment debt.

The bud­get per­for­mance eval­u­a­tion and man­age­ment sys­tem will bring gov­ern­ment-man­aged funds, State-owned cap­i­tal and so­cial se­cu­rity funds into bud­get man­age­ment. It will ex­pand the su­per­vi­sion scale to all in­vest­ment and fi­nanc­ing ac­tiv­i­ties by both cen­tral and lo­cal gov­ern­ments, Hao Lei, deputy di­rec­tor of the Bud­get De­part­ment of the Min­istry of Fi­nance, tells China Daily.

Guid­ance from the coun­try’s top pol­i­cy­mak­ers will be is­sued to gov­ern­ment de­part­ments and will be made pub­lic soon, which will clar­ify the tar­gets and func­tions of the mon­i­tor­ing sys­tem. It will take around three to five years to im­ple­ment the over­all sys­tem, Hao says.

It will be the high­est-level and most com­pre­hen­sive doc­u­ment to guide the gov­ern­ment to spend money prop­erly and ef­fec­tively, fo­cus­ing on the na­tion’s key de­vel­op­ment strate­gies and in­vest­ment, es­pe­cially when fis­cal rev­enue growth might be un­der pres­sure be­cause of fur­ther tax cuts, says Liu Xiaochuan, ex­ec­u­tive pres­i­dent of the China Pub­lic Fi­nance In­sti­tute at Shang­hai Uni­ver­sity of Fi­nance and Eco­nom­ics.

Lo­cal gov­ern­ment debt, pub­licpri­vate part­ner­ship projects and the sov­er­eign wealth fund will all be cov­ered by the sys­tem, ac­cord­ing to the guid­ance. “Any in­crease in gov­ern­ment debt ex­ceed­ing the an­nual quota should be strictly pro­hib­ited,” it says.

The min­istry is work­ing to tighten reg­u­la­tion of lo­cal gov­ern­ment debt, Hao says.

The guid­ance also tight­ens su­per­vi­sion of in­fras­truc­ture in­vest­ment. It says that be­fore is­su­ing sig­nif­i­cant eco­nomic poli­cies or start­ing large in­vest­ment projects, “the gov­ern­ment de­part­ments in charge of in­fras­truc­ture in­vest­ment should as­sess the per­for­mance”. The eval­u­a­tion re­sults should be re­ported be­fore ap­ply­ing for bud­gets, which also high­lights that fis­cal ex­pen­di­ture should not be guar­an­teed for un­ap­proved in­vest­ment projects.

For poli­cies and projects with se­ri­ous prob­lems, bud­get ap­pro­pri­a­tion should be sus­pended or stopped.

“Lo­cal gov­ern­ment of­fi­cials and of­fi­cials from gov­ern­ment de­part­ments should take life­long re­spon­si­bil­ity for bud­get per­for­mance,” ac­cord­ing to the guid­ance.

It also says that third-party agen­cies, such as credit rat­ing com­pa­nies, can par­tic­i­pate in the eval­u­a­tion process if nec­es­sary.

Wang Zecai, di­rec­tor of the Gen­eral Of­fice of the Chi­nese Academy of Fis­cal Sciences, says the reg­u­la­tion on in­fras­truc­ture in­vest­ment may not in­flu­ence the re­cent ac­cel­er­a­tion in project fi­nanc­ing, when the au­thor­i­ties were called on to strengthen in­vest­ment and off­set eco­nomic head winds.

“In­stead, it will en­cour­age lo­cal gov­ern­ments to use funds legally and in ef­fec­tive ways, think­ing more about po­ten­tial risks and costs,” Wang says.

Ac­cord­ing to data from the Min­istry of Fi­nance, a to­tal of 526.6 bil­lion yuan ($77 bil­lion; 65 bil­lion euros; £58 bil­lion) of spe­cial-pur­pose bonds were is­sued in Au­gust, a surge from 196 bil­lion yuan in July, to mainly sup­port in­fras­truc­ture in­vest­ment.

The sharp growth came af­ter the min­istry called in Au­gust for quicker steps to be taken to­ward the launch of spe­cial-pur­pose bonds by lo­cal gov­ern­ments to sta­bi­lize in­vest­ment, ex­pand do­mes­tic de­mand and strengthen weak ar­eas.

The guid­ance also re­quires the cen­tral and lo­cal gov­ern­ments alike to im­ple­ment tax cut mea­sures, and for­bids re­port­ing of ex­ag­ger­ated or fake GDP tar­gets.

Ex­perts say the na­tion’s top leg­is­la­ture, the Na­tional Peo­ple’s Congress, will re­view three more bud­get im­ple­men­ta­tion re­ports for gov­ern­ment-man­aged funds, Sta­te­owned cap­i­tal and so­cial se­cu­rity funds.

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