Editor Wang Yanchun
Recently, the director of the Foreign Affairs Committee of the CPPCC National Committee and former Minister of Finance Lou Jiwei delivered a speech at the Fifth Forum on Finance and National Governance and the 40th Anniversary Seminar of Fiscal Studies, saying that China's "fiscal balance of payment contradiction is exceptionally sharp, and the pressure on the finance is constantly increasing. The fiscal pressure has been increasing. In the medium and long term, due to the impact of the epidemic, the decline in the potential growth rate of the economy, and the global economic downturn, it is expected that China's total fiscal revenues in the next five years will be running at a low level, while the pressure on fiscal expenditures is still greater. It can be said that the financial difficulties are not just a recent, short-term thing, the medium term will also be very difficult."
For the local government debt problem, Lou Jiwei said in his speech, "14th Five-Year Plan" period, most of the provinces and municipalities of the debt sustainability is a concern, a rough calculation, about a quarter of the provincial financial more than 50% of the fiscal revenue will be used for debt servicing. The problem of local government debt not only affects the ability of local governments to supply public **** services, but also accumulates fiscal and financial risks.
Lou Jiwei's statement triggered concerns about the future sustainability of China's finances.
Data from the tax department shows that the 2020 fiscal tax growth rate hit a half-century low. 2020 fiscal revenue growth rate of -3.9%, the lowest growth rate since 1976; tax revenue accounted for 84.4% of fiscal revenue, the growth rate of -2.3%, the lowest growth rate since 1969, that is, since half a century. Among them, more than 2 trillion yuan of social security revenue in 2020 from the general public **** budget subsidy income, accounting for 28% of social security revenue, accounting for 8.7% of fiscal expenditure.
How to further clarify the problems of the fiscal operation system? How to prevent and resolve risks in the financial sector? How far is the fiscal crisis from China? In order to explore the root cause of the government debt problem, "Finance" magazine recently invited the joint financial research institute experts, the former deputy director of the State Administration of Taxation Xu Shanda, Vice President of Renmin University of China Liu Yuanchun, JP Morgan Chase China's chief economist Zhu Haibin, Jianyin Bank International, Managing Director and Head of Macro Research, Cui Li for discussion.
Relying on general budget revenues to subsidize the social security gap is difficult to maintain
Financial Times: What are the more prominent contradictions and difficulties in the financial sector at present? Liu Yuanchun:
First, the growth rate of fiscal revenue has declined; second, there is a mismatch between fiscal power and authority; and third, the positioning of fiscal functions needs to be improved. The fiscal system is now in an era of great transformation, great reform and great adjustment, shouldering an unprecedented dominant role, so the corresponding efficiency problems and fairness problems will arise. The reform of the fiscal system is the focus of this year's reform and the "14th Five-Year Plan", but the interests of the financial sector are widely related, the reform is particularly difficult, and it is even more difficult to have a basic and fundamental reform.
Xu Shanda: At present, the government's various debts are growing rapidly, interest payments and repayment of principal after maturity will bring great pressure on the general budget revenue and expenditure, the incremental adjustment of fiscal revenue space is gradually shrinking, the use of state-owned capital stock is the only way to solve the problem. in late 2017, the State Council issued the "transfer of part of the state-owned capital The State Council issued the "transfer of part of the state capital to enrich the implementation of the social security fund program", pointed out that the transfer ratio is unified for 10% of the state capital.
From the current difficult financial situation, it is difficult to maintain the practice of relying on general budget revenues to subsidize the social security gap, and it is necessary to use the stock of state-owned capital to solve the social security gap, but it is certainly not enough to row only 10%. Now the biggest problem is not to increase the allocation of state capital, but first of all to study how the already allocated part can replace the general budget expenditure. Now the equity of state-owned capital is in a state of reserve, and does not actually enter the social security revenue and expenditure system.
At present, it is still necessary to open this channel, so that the spare state capital equity funds to replace the general budget expenditures, into the social security of the actual income and expenditure, if not enough and then additional allocation of the proportion. If this reform can be quickly pushed forward, the adjustment of the fiscal pattern will be a great impetus to the prevention of fiscal risk will also be of great help.
In the future, the central and local financial general budget expenditure subsidies to the social security system can no longer continue, to increase the reform of the social security system, as soon as possible to realize the national integration, with the interests of state-owned capital to gradually reduce the general budget subsidies. At the same time try to improve the social security fund income.
Finance: Under the current pressure of fiscal revenue and expenditure, whether to continue to reduce taxes and fees on enterprises?
Xu Shanda: The competitiveness of China's corporate tax system is lower than that of the United States, Europe, and Japan, and this is most fully manifested in the high-tech, asset-heavy enterprises.
This year's government work report proposes a full refund of the incremental VAT tax credit for advanced manufacturing enterprises on a monthly basis, which is an important decision to improve the competitiveness of China's corporate tax system. This policy is actually not a tax cut, but a postponement of tax payment, reducing the financial burden of enterprises, lowering the gearing ratio and reducing interest expenses. When the gearing ratio of enterprises is reduced, the share price of listed companies will increase. When interest expenses are reduced, the cost of enterprises will be lowered. The most typical enterprise is the Wuhan Yangtze River storage under the Tsinghua Purple light, if the tax retention are changed to tax rebate, Purple light group may now not to debt default.
Liu Yuanchun: The main body of this year's tax cuts are still small and medium-sized enterprises, and for small taxpaying subjects, the starting point was further raised, and the tax rate was also adjusted downward. This year's tax cuts highlight structure-oriented, innovation-oriented, etc., has been gradually shifted from last year's emergency relief to a strategic orientation, and gradually become normalized.
"Fourteenth Five-Year" period is a very important strategic orientation is how to expand effective demand. From this strategic point of view, a sustained and substantial tax cuts, in China's tax system based on the flow of tax conditions, more conducive to the supply side and the production side, rather than in favor of the consumption side. Therefore, there should be a shift from aggregate tax cuts to structural tax cuts.
Preventing local debt risk requires solving the problem of matching local financial and administrative rights
Finance: How to prevent and solve the risk of government debt, including the risk of explicit and implicit debt? Zhu Haibin: China's economic recovery in 2020 was very successful, but the level of debt in the non-financial sector of the whole society rose very quickly. Last year China's debt level rose by about 25 percentage points, and government debt in particular is rising very fast. Involving local government debt, there was a certain degree of deterioration after the epidemic last year. In addition to the size of the special debt within the budget has been adjusted upward significantly, the debt raised by local government financing platforms outside the budget is also a significant increase. Cui Li: China's overall government indebtedness is relatively low, but the pressure of local government debt is greater. There is a need to address structural issues including the matching of local financial authority and expenditure responsibility, and the revitalization of state-owned assets. Resolving local debt risk, one is the need to control the local debt rate, to ensure that the local debt and fiscal revenues, project income, etc. match; the second is to promote the transformation of the platform company, to reduce the hidden debt risk. The platforms that do not have the ability to finance and operate on their own may be gradually merged and reorganized, and written off; while the platforms that have the ability to finance and operate well will comply with the next stage of urbanization and regionalization development trends, and continue to serve as an important financing and state-owned assets operating platform for local development; the third is to improve the central to local transfer payment system, and to improve the ability of local finances to cope with the risks. Liu Yuanchun:
A lot of reforms in such a system of interests, good reforms into bad tricks, such as the emergence of fake PPP, REITs, etc., can be said to be defensible, because under financial pressure, local governments in accordance with the law "innovation" endogenous impulse is difficult to inhibit. The solution to this problem is to change the functions of the local government, carry out a major reform of the financial and tax system, improve the assessment of local officials, and strengthen digital supervision.
At the same time, the local government system itself is facing a huge reform. First, the problem of redundant grassroots administrative organizations. Second, the problem of empty pay in public institutions. Therefore, the local administrative system needs to be further slimmed down.
Local governments and local state-owned enterprises also have a certain degree of collusion of interests, giving rise to local closure, market segmentation, transfer of benefits and other behaviors. It is necessary to break the link of interests between local governments and local state-owned enterprises through the reform of local state-owned enterprises and the transformation of local government functions. China should strengthen and expand central enterprises with international competitiveness, but there should not be SOEs in every county. This is not conducive to the smooth flow of the domestic cycle, breaking the interests of the government and state-owned enterprises tied.
Hardening the budgetary constraints of local SOEs is also key. To adjust the business planning of local state-owned enterprises, not in line with the direction of strategic development, there is no market competitiveness of enterprises, the elimination of the must be eliminated.
Finance: How to save financial costs and improve the efficiency of spending?
Xu Shanda: Some of the direct poverty alleviation funds from the central government directly to the county, without going through the provincial and municipal levels of finance, reducing the provincial and municipal governments to the central poverty alleviation funds retained, and improve the financial efficiency. There is still much room for improvement in the technical aspects of fiscal revenue and expenditure management. Government departments, financial bureaus and others can use the network and information technology to improve management efficiency, reduce costs and save financial expenditures.
Zhu Haibin: First, the expenditure should be adjusted from off-budget to on-budget, in recent years, the scale of China's special debt is expanding every year, in fact, it is a good thing, reflecting some off-budget projects to transfer to the budget, become more transparent. Secondly, the public transparency of expenditure information should be strengthened and external supervision should be increased. In the future, the functions of the government should change, from more involved in production and investment activities to a service-oriented government. In addition, the government's information disclosure and acceptance of monitoring by all parties inside and outside the system are also areas for improvement.
The revenue from land finance in the current year should be matched by the expenditure in the coming years
Finance: Some people are worried about the phenomenon of fiscal crisis, how to avoid the emergence of some places in China with obvious financial difficulties?
Liu Yuanchun: It's too early to talk about a fiscal crisis, and it certainly won't happen in China. As long as you can follow the scientific law of financial supervision, you can effectively control the risk. The Chinese government decided that the government's self-adjustment ability is very strong, the whole system of the transformation is very fast. China's economic system determines that the whole country is a chessboard, and the assets that the central government can hold in its hands are huge. We need to further strengthen the good financial control and supervision system.
Finance: How do you see the main focus of fiscal policy in the future?
Zhu Haibin: Fiscal policy this year should not only echo the economic recovery and normalization after the epidemic, but also combine with the future medium- and long-term structural transformation of the economy. The direction of fiscal support, a very important part of the local government special debt, and project-related. Fiscal is very important for investment in specific areas. For example, public **** investment can provide strong support for the future digital economy, technological innovation, 5G and new infrastructure.
A significant portion of government investment may be through PPPs, encouraging social capital participation, with the government playing a guiding role and engaging in partnerships. In infrastructure investment, environmental protection and green investment, etc., the medium- and long-term investment demand is huge, but it can not be met by public **** investment alone, and there are problems with the efficiency of investment in the public **** sector. Therefore, there is still room for improvement in how to better integrate public **** sector and private sector investment through government guidance and support, coupled with private sector efficiency, and commercial viability assessment.
The reality is that the private sector does not need to be mobilized by the government to have the willingness to invest in projects with good profitability. Most of the projects entering the PPP are projects with relatively long investment periods and relatively low rates of return. If the government has the ability to give support, such as government purchases and some guarantees of returns, it is possible that social capital will be willing to participate. However, if the local government has limited financial resources, then the private sector's willingness to invest is still insufficient. Also within PPP, risk taking can often be problematic, and in some cases, local governments have taken on too much risk. Therefore, there is a need for further operational standardization in the future.
In addition, the financial aspects of the past did not do too much is in the social services and security, in the new urbanization process of livelihood protection and social security system is not enough to do, need to be strengthened. For example, the 2020 unemployment relief and various forms of financial support for vulnerable people in the wake of the epidemic, China and other countries than the strength of the obvious small. The government should continue to increase financial spending on people's livelihoods, social security, healthcare and education.
Xu Shanda: A local government in China is very much like a board of directors, and its main responsibility is to attract investment. The responsibility of local governments in China for economic development is one of the most prominent in the world, and their role in driving the economy is irreplaceable. To a large extent, China's development relies on the pull of investment, and investment is the main channel for local governments to increase their income, and it is only through investment that there are tax revenues and employment. Many local leaders are responsible for grabbing projects and investments, but they may also encounter fake projects, and some people take advantage of the investment impulse of local governments to cheat resources, land and equipment. Therefore, under China's investment-driven economic development model, project risk is something to be highly vigilant about.
Finance: How to reduce local governments' dependence on land finance?
Zhu Haibin: When it comes to land finance, first of all, we have to admit that it has played a positive role in the process of real estate market, infrastructure improvement, and urbanization and industrialization in the past 20 years, but some negative effects are also increasingly prominent. Last year's local government land revenue exceeded 8 trillion yuan. Many discussions now focus on how to find alternative sources of revenue to land finance, such as the property tax that has been hotly debated for years. But these discussions have focused too much on local government revenue sources, and relatively neglected the need for big improvements in government spending.
The land grant corresponds to 70 years of future rental income, and a year's land revenue should be matched by many years of future expenditures, rather than the year's revenues are used up within the year. The reality is that land grant revenues are often spent in the same year, and the formation of persistent and rigid expenditure needs. Once the revenue from land finance falls sharply in a certain year, local financial problems will immediately arise. The reform of land finance should strictly regulate the use and supervision of land premiums (as well as broader fiscal expenditures), with earmarking, transparency of expenditures, and the introduction of internal and external supervision by various parties.
Xu Shanda: Local governments' reliance on land finance will continue. China is currently in the process of urbanization, the mobility of people to the city is high, the demand for urban housing will be very high, high demand for housing prices will not fall. The demand for urban housing will be high, and when demand is high, housing prices will not fall. There will be a surplus of housing in rural areas and townships, and sooner or later a group of people will be eliminated. Residents' demand for housing is continuing to grow, some local governments through price limits and other administrative means to curb housing prices, certainly can not be curbed. In the future, it is still necessary to make adjustments in the supply and demand relationship, increase the supply of housing, especially the supply of guaranteed housing, the pressure on housing prices will be reduced. As long as there is room for home prices to rise, there is room for land prices to rise.
Reform of the financial system needs to follow the trend of the times
Finance: In the future, the reform of China's financial and tax system should be a breakthrough in what areas?
Xu Shanda: For the transfer of state-owned capital to enrich the social security fund, China's leadership has clearly defined the direction of the reform, and now we need to speed up the design of the specific implementation program, which is also a cure for the fiscal risk. The current general budget is under great pressure, and if the tax burden is further reduced for enterprises, the debt risk is higher. After replacing the incremental national wealth with the national wealth stock (state capital), the general budget will have more room for adjustment, and the adjusted fiscal subsidies can be used to reduce the tax burden on enterprises and pay off government debt, and re-allocate resources.
Liu Yuanchun: First, there is a structural risk on the basis of controllable overall debt ratio. At present, the structural risk is mainly reflected in the reform of the tax system, the relationship between the central and local finance. The current institutional mechanism of the problem is very obvious, the Third Plenary Session of the 18th Central Committee has been put forward, the central and local financial rights, the right to allocation of the conflict exists. At present, can only increase the transfer payment, but rely on the transfer payment system, it is difficult to adapt to China's future high-quality development and new development pattern.
Second, the mode of transfer payments needs to be improved. For example, whether the planning of special transfer payments is reasonable, whether the volume of general transfer payments is large enough, and the coherence between provincial finance and grassroots finance. Provincial finance is the hub of regional integration in transfer payments, and there is a lot of uncertainty here about whether it can allocate resources in accordance with the requirements of high-quality development, and whether it can be adjusted according to the requirements of the new era in which local governments operate. The normalization of the fiscal direct mechanism established during last year's epidemic is a major institutional adjustment that strengthens the penetration of transfer payments while ensuring the smoothness and continuity of grassroots government.
Third, whether the regional integration of finance is strictly in accordance with the administrative board, which involves the function, the positioning of the problem, the current regional integration in accordance with the administrative board, and the regional function, there is a conflict between the positioning, that is, the structural problem is fully highlighted.
Fourth, the financial system can not fully adapt to the development of the new era. From the point of view of revenue, the tax model with turnover tax as the main body is unsustainable, to consider the timely introduction of property tax, inheritance tax and so on. A large number of new industries, new modes and new sectors have emerged in full swing. The tax base should be transferred from traditional industries to emerging industries, the most obvious is the platform economy, and even become a hub for tax avoidance and leakage, wealth transfer, and the establishment of some large-scale multinational corporations, resulting in the weakening of the tax base.
Fifth, China's tax costs are high, but in the age of information technology, a modernized tax system does not require so many people and costs.
The current fiscal reform must seize the window period, especially the window period when the grass-roots government has difficulty in financial operation. The current core problem is that the fiscal reform has not found a breakthrough, and has not constructed an implementable scientific path, and should seize the systemic problems highlighted by the current financial to find a reform path.
Finance: How to better utilize special bonds to support economic development?
Cui Li: First, adhere to the special debt issuance project-oriented: special debt requires the project to be self-balancing in accordance with its own revenue and financing. From the data of 2020, the most issued provinces are Guangdong, Shandong and Jiangsu, all more than 200 billion yuan. In the future, it is expected that special bonds will continue to favor regions with many key projects and lower risks. Provinces in developed regions have more room to issue special bonds and invest in the future, and are more sustainable from a revenue perspective.
Secondly, the appropriate expansion of the use of special bonds: the government work report requires that this year's special bonds will "reasonably expand the scope of use". Relaxing the industry, creating new varieties, and increasing the autonomy of local debt issuance can reduce capital deposits, improve investment efficiency, and promote local investment.
Thirdly, to improve the marketization of special bond issuance: improve the information disclosure system, promote the diversification of the bond investment subject, so that the bond interest rate reasonably reflects the regional differences and project differences, is conducive to enhance bond liquidity, support local government financing.
Fourth, strengthen debt management: integrated management of local government assets and liabilities, while strengthening the full-cycle supervision of special debt projects to maintain the sustainability of local debt.
Liu Yuanchun: If the large-scale project construction debt funds can not keep up, it may become a rotten project. Therefore, it is necessary to ensure that there is stability, continuity and sustainability of finance. In terms of investment, basic and industrial project investment, its profitability is not bad. But be wary of a new round of local economic bubbles, infrastructure bubbles have begun to appear, then in the special debt should not be overly inflated, at the same time to ensure that the original strategic project layout.
From the point of view of the government's input, the core point is still to improve the enthusiasm of private investment. Private investment accounts for 60% of total investment each year. The government should do some basic, guiding and strategic work to reduce the distortion of resource allocation, enhance the endogenous momentum of economic development, and help small and medium-sized private enterprises to tide over the difficulties.