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Spending scrutiny to step up sharply

Chen Jia
Updated: Sep 25,2018 6:45 AM     China Daily

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, told China Daily.

Guidance from the country’s top-level 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, said Hao.

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, said Liu Xiaochuan, executive president of the China Public Finance Institute at the Shanghai University of Finance and Economics.

Local government debt, public-private partnership (PPP) 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.”

The ministry is working to tighten regulation on local government debt, said Hao from the Ministry of Finance.

The guidance also tightened supervision of infrastructure investment. It said 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 the budget, which also highlighted that the 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,” it said.

According to the guidance, third-party agencies, such as credit rating firms, can participate in the evaluation process if necessary.

Wang Zecai, director of the General Office of the Chinese Academy of Fiscal Sciences, said that 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 headwinds.

“Instead, it will encourage local governments to use funds legally and in effective ways, considering more about potential risks and costs,” said Wang.

According to data from the Ministry of Finance, a total of 526.6 billion yuan ($76.7 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 last month 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 both central and local governments to actually implement tax cuts measures and forbids any report of exaggerated and fake GDP targets.

It means the nation’s top legislature, the National People’s Congress, will review three more budget implementation reports for government-managed funds, State-owned capital and social security funds respectively, said experts.

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