BEIJING — The Chinese government has come up with new measures to shore up the economy after key data pointed to continued weakness and increasing downward pressure.
The State Council, China’s cabinet, announced on April 1 that it will allow the administrators of the social security fund to invest it in local debt, and that it will boost e-commerce by cutting red tape and liberalizing investment regulation in the sector. It also urged local governments to make appropriate and full use of their budgets.
Social security in China refers to government programs aiming to promote the health and well-being for the population at large. The government will provide help at times when the enrolled people are sick, disabled, unemployed or giving birth to babies, etc. On August 1, 2000, China established the National Social Security Fund (NSSF), the nation’s pension fund, and the National Council for Social Security Fund (SSF) to manage and operate the assets of the NSSF.
The funding sources of the NSSF include fiscal allocation from the central government, allocation from the lottery public welfare proceeds, individual contributions and capital raised by other methods approved by the State Council and the investment proceeds therefrom.
The above-mentioned cabinet’s measures came a few hours after the release of two separate indexes of China’s factory activity for March, the first really telling indicators of the economy’s health as January and February data were skewed by seasonal factors.
The official purchasing managers’ index (PMI) for manufacturing edged higher last month, showing a modest sign of improvement in the sector. But the good news was overshadowed by a weaker HSBC PMI reading, which was down from February and stuck in contraction territory.
More troubling for policy makers was the fact that both indices pointed to less robust employment.
The State Council on Wednesday told the National Council for the Social Security Fund that it could start investing the 1.2 trillion yuan ($195.4 billion) fund, a kind of income tax-cum-pension scheme, in local government bonds and other financial instruments.
The new rules allow the council to invest up to 20 percent of its portfolio in corporate and local government bonds. Previously, it was only allowed to invest up to 10 percent in corporate bonds.
The shift came as the Chinese government strives to tackle problems related to an aging population and ease the budget strains of local governments amid slowing economic growth and a property market downturn.
The move aims to increase the investment returns of the fund, while diversifying risks, said Zheng Bingwen, director of the social security center under government think tank the Chinese Academy of Social Sciences.
Up to 10 percent of the fund can now be invested in trust loans, increasing from 5 percent previously.
Dong Dengxin, head of the finance and securities research institute at Wuhan University of Science and Technology, said the measures will help minimize the default risks of local government debt, stabilize economic growth and promote economic restructuring.
The State Council also urged better use of surplus budgetary funds, calling for local governments to allocate it to key sectors in particular.
Observers fear that the ongoing anti-corruption campaign has made local officials excessively cautious about being seen to be spending money. The money budgeted to them by the central government is often left unspent.
So that economic expansion can be realized without adding taxes or government debts, fiscal policies will now weigh mainly on putting surplus budgetary funds to use instead of depending on capital injections, said Su Jian, associate director of the economics department at Peking University.
China plans to spend more fiscal funds by raising its fiscal deficit in 2015 to 1.62 trillion yuan, 2.3 percent of GDP, up from 2.1 percent in 2014.
The central government should coordinate the use of fiscal funds to clamp down on local governments’ “administrative omissions” under the backdrop of the anti-corruption campaign, said Su.
The economist also lauded the announcement about supporting e-commerce. “Developing e-commerce aims to activate the economy by inciting private consumption as well as investment in this area. The supply-side policies include a tax cut, simplifying administrative procedures and encouraging entrepreneurship,” said Su, adding that such policies will help cultivate new growth points without increasing local debt.
The turnover of Chinese e-commerce is estimated to have surged 25 percent year on year to 13 trillion yuan in 2014, so it is unsurprisingly prized by the government.
“The Internet is a fresh tool to advance mass entrepreneurship and innovation.” On one hand, e-commerce creates job opportunities through integrating the Internet with primary, secondary and tertiary industries; on the other, it is easy to start e-businesses because the thresholds are low compared with the brick and mortar businesses, said Zhao Ping, a researcher with the Ministry of Commerce.