Bond issuances set to surge this year on fiscal pressure

More measures to boost capital necessary due to high expenditure, say experts

An expected lower fiscal deficit-to-GDP ratio this year and a continual tax cut plan could add fiscal pressure on China and may result in a possible acceleration of bond issuance, analysts said on Thursday.

The 2018 annual fiscal deficit ratio, which may be lower than last year’s 3 percent, will be proposed to the country’s top legislature during the first session of the 13th National People’s Congress, which will open on Monday, fiscal experts said, with some predicting it will be around 2.7 percent.

“The growth rate of fiscal expenditure was faster than fiscal income since last year, and the country could continue to cut taxes, further exacerbating fiscal strains this year,” said Zhu Qing, a professor of the School of Finance at Renmin University of China.

According to the 2017 budget execution report revealed by the Ministry of Finance in late January, the total national public expenditure was 20.33 trillion yuan ($3.21 trillion), 896.7 billion yuan more than the budgeted level. The actual general public fiscal income was 17.26 trillion yuan, which was 393.7 billion yuan higher than the budget.

The over-expenditure part is 2.28 times of the over-income, driving the final fiscal deficit to be 503 billion yuan more than the budgeted deficit, indicated by the official data.

“As the capital for supplementing the deficit is limited, the expended deviation between the actual and the budgeted deficits will lead to heavy pressure on fiscal balance,” said Li Rong, a researcher with the Chongyang Institute for Financial Studies at Renmin University of China.

A report from the institute released on Thursday highlighted that the growth of local governments’ fiscal expenditure was faster than expected, especially in areas to support sustainable growth, people’s livelihood improvement and environment protection.

“It should be noticed that local governments’ expenditure for paying interest on debt has remarkably increased, at a rate of 21.9 percent year-on-year, or contributed 3.57 percent of the total local governments’ budget expenditure,” the report said.

The country plans to adopt a “proactive” fiscal policy this year, with a lower tax level to reduce costs for enterprises — a tone that has been set by the annual Central Economic Work Conference in December.

To implement the fiscal policy for economic growth stability, both the central and local governments are expected to increase fundraising by issuing bonds, if a lower deficit ratio is to be set, said analysts.

In January, treasury bonds worth 190 billion yuan were issued, up 39.71 percent from a year earlier, according to data from China Central Depository and Clearing Co Ltd.

Treasury bond issuance increased by 1 trillion yuan to 3.9 trillion yuan last year, while the local government bond issuance slowed to 4.4 trillion yuan from 6 trillion yuan in 2016, according to the People’s Bank of China, the central bank.

The growth rate of fiscal expenditure was faster than fiscal income since last year ...” Zhu Qing, professor of the School of Finance at Renmin University of China 190 billion yuan China’s treasury bond issuances in January