China’s Central Government Steps Up Spending to Bolster Economy

China’s central government accelerated spending at the start of the year, a sign it’s taking on more financing responsibility to support the economy and to avoid worsening local government debt risks.

Its general public expenditure jumped 14% from a year earlier to 482.8 billion yuan ($66.8 billion) in January and February combined, the fastest pace for the period in five years, according to data provided by the Ministry of Finance.

Beijing is gradually shifting the responsibility for supporting economic growth to central government from local officials — a way to maintain the level of investment while defusing local debt risks. Local governments have been struggling after a property crisis reduced a critical source of income from land sales, and a slowing economy weighed on tax revenues.

Beijing is also trying to contain credit risks at local government financing vehicles, or LGFVs. It’s been pushing them to sell assets and allowing some of their liabilities — known as hidden debt as they don’t appear on government balance sheet — to be swapped into government bonds.

The latest data shows Beijing intends to “underpin growth while preventing risks,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. “Its overall strategy would be to replace higher leveraging by local governments while still trying to maintain cashflow for LGFVs.”

Central and local authorities spent almost 700 billion yuan in the first two months on agriculture, forest and irrigation-related issues, as well as urban and rural community development. This is up 22% from a year earlier.

The two sectors are among those identified to be eligible for funding from last year’s 1 trillion yuan of additional sovereign bond issuance, which Beijing has handed out to local governments to invest in 15,000 projects.

Local governments’ general public expenditure rose 5.8% on-year in the first two months, down from 6.8% a year earlier, the data shows. Their spending under the government-managed fund budget fell 11.1%, similar to the drop a year before, due to restrictions linked to sluggish land sales.

Source : BNN Bloomberg