Issuing additional trillions of national bonds, the national team has made a move|The cover of "Caijing".
The purpose of the special government bond is to better connect the demands for short-term and medium- to long-term economic growth. All localities are seizing the policy window period and are speeding up the planning, reserve and selection of a number of major projects that meet the requirements of high-quality development
Cover design / Li Li
Text: "Caijing" reporter Zou Biying researcher Zhang Ge
Editor|Wang Yanchun
1 trillion yuan of national debt, boots on the ground. The infrastructure sector is good again.
On October 24, the sixth meeting of the Standing Committee of the 14th National People's Congress voted to approve the resolution of the Standing Committee of the National People's Congress on approving the additional issuance of treasury bonds by the State Council and the adjustment plan of the central budget in 2023.
According to the information announced at the regular policy briefing of the State Council on October 25, the central government will issue an additional 1 trillion yuan of special treasury bonds in 2023 in the fourth quarter of this year to support post-disaster recovery and reconstruction and improve disaster prevention, mitigation and relief capabilities. This year, it is planned to arrange the use of 500 billion yuan, and carry forward the use of 500 billion yuan next year. The additional 1 trillion yuan of treasury bonds issued this time will be allocated to local governments through transfer payments, and all of them will be listed as the central fiscal deficit, and the repayment of principal and interest will be borne by the central government, without increasing the burden of local repayment.
As soon as the news came out, many local governments were moved.
On October 27, Sanyuan District, Sanming City, Fujian Province held a meeting, emphasizing the need to study and understand the policy, make good use of the policy dividends, and do a good job in the key support projects such as post-disaster recovery and reconstruction, flood control, urban drainage and flood control, etc., which are urgently needed, so as to report everything that should be reported and reported in a timely manner. On October 28, Lujiang County, Anhui Province held a meeting, requiring to seize major strategic opportunities, seize the policy window period, and accelerate the planning, reserve and packaging of a number of major projects that meet the requirements of high-quality development.
Yueyang City, Hunan Province is one step ahead. According to its official information, the main person in charge of the Yueyang Development and Reform Commission of Hunan Province went to the National Development and Reform Commission to follow up the ethylene project in early August, and learned about the relevant policy information, and took the lead in organizing the investment department and other business departments to set up a special class to guide the counties and cities to carry out project planning and reserves. On September 29, as soon as it received the notice of the National Development and Reform Commission's project declaration, Yueyang City immediately reported 408 projects, and on October 13, 928 projects were sorted out and reported again, with a total of 113 billion yuan of declared funds.
Liu Xiaoguang, a professor at the National Institute of Development and Strategy of the Chinese University of China, and other experts told Caijing that there may be multiple considerations behind the issuance of treasury bonds. This year, heavy rains, floods and other disasters have occurred frequently, and the economic losses in some areas are relatively large. After the issuance of special treasury bonds, it will objectively be conducive to easing local debt pressure, stimulating economic growth, and releasing a signal of increased macroeconomic policies. A research report by GF Securities pointed out that the adjustment of the fiscal budget in the fourth quarter is relatively rare, which is obviously to make more advance efforts for next year's finance. There is a high probability that the GDP target will be set at around 5% next year.
Source: Zhang Ge, a researcher at the Regional Economic and Industrial Research Institute of Caijing, based on public information Tabulation: Yan Bin
Jia Kang, founding president of the Huaxia Institute of New Supply Economics and former director of the Institute of Fiscal Science of the Ministry of Finance, pointed out to Caijing that the special treasury bonds are aimed at better connecting the demands of short-term and medium- and long-term economic growth, and China's economic growth is expected to reach 5% this year, but there are still uncertainties in the year after next year. By 2035, China will basically complete socialist modernization and double its total economic output or per capita income, which requires an average annual economic growth rate of nearly 5% for more than a decade, which is challenging. China's economic growth potential is still considerable, and the tools in the policy toolbox should also be actively used in the process of continuing to promote industrialization and urbanization.
Raise low-cost funds to support disaster prevention and mitigation projects
This summer, a "rare in 140 years" heavy rainstorm hit North China and the Huanghuai region, causing irreparable losses of people and materials. After the peaceful daily life was shattered, the weaknesses of China's infrastructure surfaced. A review of the flood disaster by a number of media outlets has found that the lack of water conservancy facilities in some river basins, the lack of reservoir interception, the lack of construction standards for flood control projects, the aging of the flood control project, and the neglect of daily maintenance in flood storage and detention areas have weakened the ability of northern cities to cope with extreme weather.
According to a 2021 report by the World Resources Institute and other institutions, China will need to make up for an average annual funding gap of nearly 500 billion yuan in the next five years. At a press conference held by the State Council Information Office at the end of 2018, Wang Annan, former chief planner of the Ministry of Water Resources, also said that China's water conservancy engineering system has basically taken shape, but there is still a gap in terms of future economic and social development and modernization requirements. There are still shortcomings and weak links in water conservancy projects.
"The task of river improvement in North China is relatively heavy. Existing embankments should also be further reinforced. Hong Shangchi, a former senior expert of the Yellow River Water Conservancy Commission of the Ministry of Water Resources, told Caijing that some floods occur once in 50 or even 100 years, and the water-resisting effect of flood control projects does not appear on weekdays, but once they encounter a large flood, it is crucial. For a long time, water conservancy projects have been constrained by factors such as long construction period and low rate of return on funds, and the willingness of social capital to intervene is generally not high, and it mainly depends on the government to make long-term and sustained capital investment.
According to the arrangement of the Ministry of Finance, the 1 trillion yuan treasury bonds will be mainly invested in eight major directions: post-disaster recovery and reconstruction, backbone flood control projects, natural disaster emergency response capacity improvement projects, other key flood control projects, irrigation area construction and transformation and key soil erosion control projects, urban drainage and flood prevention capacity improvement actions, key natural disaster comprehensive prevention and control system construction projects, and high-standard farmland construction. This year, the national fiscal deficit will increase from 3.88 trillion yuan to 4.88 trillion yuan, and the deficit rate is expected to increase from 3 percent to about 3.8 percent.
"The issuance of treasury bonds at this time is conducive to solving the problem of insufficient local disaster resistance and relief capacity, and at the same time accumulating strength in advance for economic recovery at the end of the year and next year." Wen Laicheng, executive director of the Zhongcai-Anrong Local Finance Investment and Financing Research Institute of the Central University of Finance and Economics, told Caijing that although the additional 1 trillion yuan of treasury bonds issued this time are managed as special treasury bonds, they are still general treasury bonds in essence. The main reason is that the additional issuance of government bonds is included in the fiscal deficit and is accounted for by the "first book" (general public budget). On the other hand, special government bonds are not included in the fiscal deficit and are accounted for in the "second book" (government fund budget).
Strictly speaking, China has issued special treasury bonds only three times since the reform and opening up: the Asian financial crisis in 1998, the global financial crisis in 2007, and the special anti-epidemic treasury bonds in 2020. In recent years, due to the downturn in the real estate market, local fiscal pressure has increased, and some views have begun to call for the central government to assume the responsibility of increasing leverage and supporting fiscal spending. In this regard, Wen Laicheng introduced that the central government's leverage is the issuance of treasury bonds, and generally speaking, there are three categories: ordinary treasury bonds, directional treasury bonds and special treasury bonds.
Liu Xiaoguang analyzed that the additional 1 trillion yuan of treasury bonds issued this year will be used for the management of special treasury bonds. Second, the timing of their issuance is at the end of the year, while general treasury bonds need to be submitted to the National People's Congress at the beginning of the year for deliberation on the issuance quota for this year. The purpose of the special treasury bonds will help the funds to be quickly implemented in the project, and the amount of physical goods will be put into construction in a short period of time, so as to improve the efficiency of the use of financial funds. For areas in urgent need of post-disaster reconstruction, this fund will effectively alleviate the pressure on local finances, and can also be regarded as indirect debt. "Even if there is no additional issuance of government bonds, the government will arrange funds to invest in these livelihood work."
The 270 billion yuan of special treasury bonds issued in 1998 for a period of 30 years are not included in the deficit, while this year's 1 trillion yuan of treasury bonds are included in the deficit. In this regard, Jia Kang explained that this is due to technical considerations, and the substance has not changed. In fact, local special bonds are also the localization of special national bonds at the central level, which are accounted for in the budget of government funds and are not included in the deficit. Special government bonds can reach a coverage period of 3 to 30 years, and the flexibility of public sector debt space is obvious, which can cover some very weak cash flow items.
Overall, China's government debt is characterized by high leverage for local governments and low leverage for the central government. According to Jia Kang's analysis, the issuance of 1 trillion yuan of special treasury bonds makes use of part of the available space in the public sector bond issuance safety zone, and uses the credit of the central government's gilt bonds to raise funds through relatively low-cost bond issuance, and then hand them over to local governments through transfer payments. Although the deficit rate has increased from 3% to 3.8% this year, it is a good way to connect the deficit from 3% to 3.8% across the year and cover two years.
A number of experts pointed out to Caijing that the central government will bear more of the fiscal deficit and issue treasury bonds to increase transfer payments to local governments, which may become the norm in the future. Luo Zhiheng, chief economist of Guangdong Kai Securities, analyzed to Caijing that compared with local bonds, the issuance interest rate of treasury bonds is low and the maturity cycle is long. The issuance of bonds by the central government has not only space, but also can reduce the cost of bond issuance and lengthen the cycle.
Fiscal expansion promotes employment, and how to implement the national debt
Water conservancy projects are often seen as an important way to stimulate the economy and create jobs. According to the data of the Ministry of Water Resources, from January to September, 24,900 new water conservancy projects of various types were started across the country, absorbing 2.212 million jobs, a year-on-year increase of 5.7%. Among them, 1.754 million rural laborers were absorbed. Disaster prevention and mitigation and high-standard farmland projects all involve the construction of large-scale water conservancy facilities. For example, Jia Kang said that urban flood prevention and the construction of sponge cities need to cooperate with the construction of underground comprehensive pipe corridors, "which requires astronomical investment to do."
In the middle of this year, China's economic recovery has weakened, and the market has been calling for a new round of stimulus policies, some of which advocate expanding the "central debt" to stimulate the economy. Liu Xiaoguang analyzed that after the release of economic data in the third quarter, the market was worried about the policy withdrawal after the completion of the "steady growth", and the issuance of an additional 1 trillion yuan of treasury bonds conveyed the macro support signal in a timely manner, which can also play a role in stabilizing confidence.
In general, however, there are two important debt red lines for fiscal stimulus: one is the deficit ratio, or deficit per GDP, which is generally required to be at or below 3%. The second is the government debt ratio, that is, (central government debt + local government debt)/GDP, which is generally required to be less than 60%. Both are derived mainly from the reference standards set out in the Maastricht Treaty. Will the increase in the national fiscal deficit ratio from 3% to about 3.8% this year magnify the debt risk borne by the state?
Experts interviewed by Caijing all said that there is still a large safety space for the central government to expand debt and fiscal policy. Jia Kang pointed out that China's annual GDP has reached more than 120 trillion yuan, and 1 trillion yuan of special national bonds accounts for less than 1 percentage point. From the perspective of international comparison, China's public sector debt ratio is low among major economies, and "there is no risk threat because of the issuance of this 1 trillion yuan special treasury bonds, and it will not lead to the adverse consequences that everyone is worried about."
Liu Xiaoguang believes that breaking the 3% deficit rate constraint is a breakthrough in fiscal thinking. Under the circumstance that the risk is controllable, it provides the necessary space for subsequent macroeconomic regulation and control, and the ability to adjust to short-term economic fluctuations in the future has also been greatly enhanced. Wen Laicheng also believes that the deficit rate of 3% is enough as a reference, and in fact, many European and American countries have not fully complied with it. In practice, fiscal policy should focus more on immediate economic needs than on the superficial implications of the 3% deficit ratio, and should not be "shackled" by this data.
According to Liu Xiaoguang and Wen Laicheng, the deficit rate was raised to 3.8% in the fourth quarter, which should be due to the fact that the policymakers realized that the current situation of global economic recovery is more complex and severe than imagined in the past, and more active fiscal efforts are needed. This is also an advance declaration of next year's macro policy, and it can be expected that next year's fiscal and monetary policies will continue to maintain a loose and positive rhythm.
Regarding the red line of 60% government debt ratio, Jia Kang also pointed out that the official sunshine public debt ratio is about 40%. There is a lack of official data on the implicit debt of local governments, and some studies believe that 10%-30% of the more than 60 trillion yuan of urban investment bonds may be local government implicit debt, so even if the debt of 20 trillion yuan is superimposed according to high-end estimates, the public debt ratio will only rise to more than 50%.
"If the public debt ratio rises a little more, it is not a hurdle that cannot be overcome. The Maastricht Treaty is a line drawn by the EU countries when they reach the terms of fiscal discipline, which has not been rigorously proven in theory, and is an early warning line of an integer threshold in terms of fiscal discipline in order to cooperate with the monetary union. After the European sovereignty crisis, some small countries could not hold this line, and Germany and France also failed to hold it, and only after the situation subsided did they fall back below the 60% line. Jia Kang said.
However, there are concerns about whether the special government bonds can be used for disaster prevention and mitigation projects. If the special government bonds are diverted to convert local government debts as they mature, will they not be able to create jobs and stimulate the economy?
Caijing has learned that since October this year, special refinancing bonds have been intensively issued in various places to replace hidden debts. The essence of special refinancing bonds is to borrow the old to repay the new, make the hidden debt explicit, and first relieve the current debt repayment pressure. According to the statistics of the Securities Times, as of October 31, a total of 25 provinces, autonomous regions, municipalities directly under the central government, and cities with separate plans have issued a total of 1,012.68 billion yuan of special refinancing bonds. According to data from Essence Securities, as of October 13, Yunnan, Inner Mongolia and Liaoning (including Dalian) issued refinancing bonds with a scale of more than 100 billion yuan. Chongqing, Guangxi, Hunan and Guizhou issued refinancing bonds with a scale of more than 40 billion yuan.
A financial source, who did not want to be named, told Caijing that in the process of issuing local special bonds, some local governments did misappropriate funds to solve urgent needs. If local governments really do not have other channels to fund the holes and cannot ensure normal operation, it may lead to the socialization and politicization of economic problems. When this situation arose, the higher-level government had no choice but to turn a blind eye. However, the purpose of the 1 trillion yuan special treasury bond issuance is very clear, and in principle, it cannot be misappropriated.
At the regular policy briefing of the State Council on October 25, Zhang Shixin, deputy secretary-general of the National Development and Reform Commission, also said that in order to promote the accurate and effective use of funds, all the funds for the additional issuance of treasury bonds will be managed according to the project. Through online monitoring and on-site supervision, we will strengthen the supervision and inspection of the construction of treasury bond projects and the use of funds, promote the smooth construction and implementation of projects, and further enhance disaster prevention, mitigation and relief capabilities. We will seriously pursue responsibility for the misappropriation of funds for treasury bond projects in accordance with relevant regulations.
On the other hand, Wen Laicheng and Liu Xiaoguang also pointed out that although the additional treasury bonds issued this time clearly cannot be directly used for localized bonds, after the transfer of the funds to the local government, the funds originally used to consolidate water conservancy projects can be freed up, which will reduce the pressure on local governments to a certain extent, and will also indirectly benefit recurrent expenditures such as localized bonds and wages. "It can even be said that the additional issuance of trillions of treasury bonds can be regarded as a practice of the 'package of debt packages' proposed by the previous Politburo meeting."
On August 27, 2023, the launching ceremony of the reconstruction project in the Fangshan disaster area was held. Fangshan District has completed the transformation from the emergency rescue stage of "four links and one guarantee" to the reconstruction and upgrading stage, and the post-disaster reconstruction project has been fully started, focusing on the fields of residential housing, water conservancy facilities, transportation facilities, municipal facilities, and public service facilities, and promoting the implementation of restoration and reconstruction projects. Photo/Visual China
On August 16, 2023, in Shulan City, Jilin Province, workers demolished damaged houses. The post-disaster housing reconstruction (repair) work in Shulan has been launched, and various methods such as decentralized reconstruction, centralized reconstruction and monetized resettlement have been adopted to carry out classified resettlement for the affected households. Photo/Zhongxin
On September 5, 2023, the first anniversary of the "9.5" Luding earthquake, the first batch of new houses rebuilt after the earthquake in Moxi Town, Luding County, Ganzi Tibetan Autonomous Prefecture, Sichuan Province, was successfully delivered. The picture shows the first batch of new houses to be delivered at the centralized resettlement site of Dashanshu Village (Xingfu New Village), Moxi Town, Luding County. Photo/Zhongxin
Investment and consumption must be balanced, and local financial resources must rely on reform
In fact, there has been a long call for fiscal efforts. In 2023, stable growth will rely more on monetary policy easing, and fiscal policy will be weaker. Bian Quanshui, chief analyst of Western Securities, told Caijing that the central bank has cut interest rates twice and cut the reserve requirement ratio twice this year, and the monetary policy has remained relatively loose. However, fiscal policy remains tight overall. The issuance of an additional 1 trillion yuan of treasury bonds is intended to be used in two years, and it is expected that the growth rate of infrastructure investment in 2024 may achieve double-digit growth, and the nominal GDP growth rate may rise by 1-2 percentage points compared with this year.
However, before the 1 trillion yuan special treasury bond was landed, there was also a debate in the economic community about whether China should issue special treasury bonds and the purpose of the special treasury bonds. Some experts hope that the incremental government bonds will be used to promote investment in infrastructure projects and boost employment; Some experts suggested that the new treasury bonds should be turned into direct cash supplements or consumption vouchers for residents' consumption, so as to boost the consumption shortcomings of the national economy.
Opponents of continued investment in infrastructure are concerned that government investment is inefficient, distorts market competition, and is unsustainable. Wang Xiaolu, deputy director of the National Economic Research Institute of the China Reform Foundation, pointed out that in the past, government investment in infrastructure construction did play an important role in economic development, but at the same time, a large amount of government investment was spent on inefficient and ineffective projects, which was a huge waste. Some urban construction projects are luxurious but useless, and many urban real estate and industrial parks are still vacant. At present, there is less and less room for effective investment, and if we continue the past model to expand government investment, the efficiency will inevitably become lower and lower.
However, Yu Yong, a member of the Chinese Academy of Social Sciences, told Caijing that "a heavy rain in Beijing has fully exposed our infrastructure problems." "There is a perception that China's infrastructure is inefficient, wasteful, or even saturated. Practice has proved that this view is very wrong. There is no denying that there is a lot of waste in infrastructure. But that's a question of what to invest in and how to vote, not whether you should vote or not. As China is in a quasi-deflationary state, there should be no fear of further rise in the fiscal deficit.
The meaning of infrastructure has completely gone beyond the extension of "iron machine". It includes not only infrastructure in the traditional sense, but also "new infrastructure", the provision of public goods for medical care, education and elderly care, including basic research that supports technological innovation and technological revolution.
Yu Yongding said, "We also need to consider giving full play to the enthusiasm of private enterprises, state-owned enterprises, local governments and other social forces." If China continues to implement more expansionary fiscal and monetary policies, and corrects the problems that arose in the implementation of the 'four trillion' policy, instead of overemphasizing the 'normalization' of macroeconomic policies and actively lowering the GDP growth target year after year, it is entirely possible to maintain a GDP growth rate of about 6%. ”
Jia Kang also recognized that fiscal funds will continue to be invested in infrastructure. In his view, if there is no effective investment to increase employment opportunities and increase people's income, consumption will be water without a source and a tree without roots, and promoting consumption will not be sustainable. In addition, if the fiscal policy is designed to be invested in the way of helicopter money, there is a problem of fairness in the policy design, "give Ma Yun a copy, and give the same copy to the low-income class, the policy level is too low", but if it is complicated to distinguish between demarcation and money, it is difficult to simply copy the experience of other countries.
In fact, in many economic downturns in history, infrastructure is often seen as the most immediate means of regulation. In 1929, during the Great Depression in the United States, then President Franklin D. Roosevelt implemented cash-for-work, and the United States built a large number of railways, highways, airports, docks, farmland and water conservancy, municipal projects and other infrastructure, which promoted employment. The Japanese government also stimulated the economy with infrastructure at key points such as the bursting of Japan's bubble economy in 1991, the Asian financial crisis in 1998, and the global financial crisis in 2008.
In Liu Xiaoguang's view, through infrastructure investment, stimulating employment and economic growth is a stimulus for the rapid and rapid formation of physical quantities in the economic cycle. As for excessive infrastructure, it is true that some places are already duplicating construction, but in some places the infrastructure is still relatively scarce. Especially for the future, if China wants to achieve high-quality development, its infrastructure also needs to be upgraded.
At the same time, the experts interviewed by Caijing all stressed that fiscal policy needs to take into account both consumption and investment. Liu Xiaoguang pointed out that it is necessary to pay attention to the balance between investment and consumption, especially to increase residents' income and stimulate consumption through finance. "At least from next year, we will promote investment and consumption." Wen Laicheng said that for some places where the marginal return on infrastructure investment has declined, it is recommended that more financial funds be invested in education, medical care, sanitation, social security and other security issues, and stimulate consumption through the improvement of people's livelihood.
It is important to note that special government bonds are not a common means of stimulating the economy. Wen Chenglai pointed out that if the economic growth target of 5% is successfully completed this year and the economic situation improves next year, the total amount of debt issuance should be appropriately controlled, and even a moderate correction should be made. "Generally speaking, the current accumulated debt risk is indeed not small." At present, the fiscal revenue and expenditure of the central and local governments do not fully match their powers. The 1 trillion yuan treasury bond aims to alleviate the contradiction between the central and local fiscal relations in the process of "stabilizing growth". Next, it is necessary to optimize the debt structure of the central and local governments, increase national debts, reduce local debts, and reduce fiscal risks; In the general direction, we will gradually promote the financial reform of the central and local governments.
From October 30 to 31, the Central Financial Work Conference was held in Beijing, and the meeting also proposed to establish a long-term mechanism for preventing and resolving local debt risks, establish a government debt management mechanism compatible with high-quality development, and optimize the debt structure of central and local governments. In Jia Kang's view, in the future, it is also necessary to overcome difficulties in deepening reform, improve the financial system below the provincial level, and form a "hierarchical finance based on the tax-sharing system" that combines the local tax system and transfer payments, so as to fundamentally solve the problem of insufficient local financial resources.
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