Spending scrutiny to step up sharply
New system to put financing and investment by central, local governments in the spotlight
“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.