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Implementing a Higher-quality and More Effective Proactive Fiscal Policy

By Liu Kun Source: English Edition of Qiushi Journal Updated: 2020-07-15

Fifth, emphasizing performance. By implementing performance-based budget management across the country, we will make the use of funds more effective.

Implementing comprehensive performance-based budget management is an important measure for tightening the government's belt, addressing imbalances between government revenue and expenditure, and improving the performance of government funds. Currently, some local governments and departments have not fostered real awareness of the need to scrutinize expenditures for their effectiveness, and the inefficient or ineffectual use of government funds remains a prominent problem. This means there is enormous room and potential for raising budget performance. In line with the CPC Central Committee and the State Council's Guidelines on Implementing Comprehensive Performance- Based Budget Management released on September 25, 2018, we must work faster to put in place a comprehensive management system that covers all sectors, projects, and budget types, as well as the whole budgetary process. We will gradually extend the coverage of performance-based management to all government funds as well as all primary-level organizations and the end users of funding, and reinforce accountability of institutions for their performance in using budgetary funds. We will optimize related procedures and embed performance-based management as an essential component of budget management, promoting the integration of these two management systems. We will intensify efforts to monitor budgetary performance and take measures to address problems such as the low-quality self-evaluations and the limited role of third-party evaluations, seeing that errors are rectified promptly. In addition, we will work to ensure effective rectification of problems related to budgetary performance, slash inefficient and ineffectual expenditures based on the results of performance evaluations, and establish incentive and restraint mechanisms that reward good performance and punish bad performance.

Sixth, preventing and controlling risks. By making effective use of the fiscal risk control system, we will forestall and defuse latent risks in local government finance.

While local government debt risks can currently be controlled on the whole, numerous latent risks still remain. Finance departments must boost their alertness to risks, and treat events with low probabilities as if they had a high probability of occurring. We must not only maintain vigilance against the risks in financial sector, but also forestall the transmission of risks from other sectors. In order to effectively prevent and control risks related to hidden local government debt, we will refine mechanisms for regular risk monitoring so that potential risks are handled as soon as they are identified. We will make the most of local government special purpose bonds by ensuring that funds are used for projects, improving investment structures, and expanding the scope of use for these bonds. With regard to projects, we will establish a circular investment mode that pushes ahead with the phases of approving projects, issuing bonds, completing project construction, and approving new projects in sequence, thereby increasing effective investment as quickly as possible and forming effective drivers of economic growth. In upholding market- and law-based principles, we will push local governments to rigorously implement debt clearing plans through practical and meticulous measures, address hidden debts through prudent measures, and accelerate the transformation of local government financing platforms while strictly prohibiting attempts to pass the buck by falsely dissolving debt. We will intensify oversight and accountability, strictly rectify irregularities in financing, effectively prevent the increase of hidden debts, and collaborate with relevant authorities to investigate and punish elements of corruption concealed in local government debt risks. We will think in terms of the big picture, keep worst-case scenarios in mind, and conduct forward-looking analysis and assessment of various potential risk factors, thereby getting a clear picture of the situation so that we can respond with appropriate countermeasures and ultimately promote social harmony and stability.


Primary school students belonging to the Yi ethnic group do their homework while riding the train home for vacation on January 18, 2020. Every morning, the No. 5633 and No. 5634 trains linking Puxiong Railway Station in Yuexi County, Liangshan Yi Autonomous Prefecture and the city of Panzhihua in Sichuan Province depart and head in opposite directions. Passing through steep cliffs deep in the Daliang Mountains, the trains pass nearly 30 stations on the route, stopping at each. Tickets cost just 25.5 yuan for the whole journey of 353 kilometers, with the cheapest tickets costing only 2 yuan.


III. Adjusting the structure of government spending while guaranteeing such spending in key areas

In arranging this year's fiscal expenditures, we will follow general guidelines of keeping macro policies stable and micro policies flexible and ensuring that social policies guarantee basic needs. With the aim of reaching our goal of building a moderately prosperous society in all respects, we will focus on prioritizing key sectors, addressing inadequacies, and shoring up weaknesses. Moreover, we will make resolute efforts to win our all-out people's war against the COVID-19 epidemic and make progress in the three critical battlefronts against poverty, pollution, and potential risks. All in all, we will promote reasonable economic growth and steady increases in the quality of economic growth while driving forward further improvement of living standards.

Providing support for winning our all-out people's war against the epidemic

At present, the most pressing and important tasks for finance departments at all levels are to increase budgetary input to guarantee funding for epidemic prevention and control, and to formulate and implement supporting fiscal and tax policies. By 9 PM on February 12, governments at all levels had allocated a total of 78.53 billion yuan for epidemic prevention and control, with 17.29 billion yuan coming from the central government. In conjunction with relevant departments, finance departments have introduced over ten supporting fiscal and tax policies, including transferring the burden of medical expenses of confirmed patients to governments at different levels, allowing personnel participating in epidemic prevention and control to enjoy work-related injury insurance benefits, and granting provisional subsidies to medical workers fighting on the front lines. On February 5, the State Council decided to put forward another array of fiscal, tax, and financial policies based on the preliminary measures introduced in various sectors for responding to COVID-19 aimed at securing key prevention and control supplies by strengthening funding support for enterprises that produce them. According to how the epidemic situation develops, the central government will continue to provide funding guarantees, boost the transfer of funds for epidemic prevention and control to county and township governments, and see that these funds are well managed and used appropriately. Finance departments at all levels must think on the same page, enhance political awareness, and take concrete steps to make sure that these policies are effectively implemented. More efforts must be made to increase funding guarantees in order to avoid problems such as people deciding not to seek medical treatment over concerns about costs or local governments being forced to cut corners on treatment or prevention and control efforts due to funding issues. We must see that related policies are properly implemented, make thorough plans for our work, prepare adequate budgetary funds, ensure that these funds are promptly appropriated, and strengthen oversight and management so that policies are able to play their full effect. While anti-epidemic efforts are ongoing, finance departments at all levels should plan government procurement in a rational manner, enhance protective measures at procurement sites, advance the implementation of online procurement, and open up "green channels" for procurement.

Backing efforts to fully complete tasks in the fight against poverty on schedule

To build a moderately prosperous society in all respects, it is absolutely necessary that we complete our tasks in the fight against poverty. This year our anti-poverty initiatives will move into their final, decisive stage. It is therefore crucial that we spare no effort in completing our remaining tasks in the fight against poverty. We will further increase fiscal support for poverty alleviation, focus our anti-poverty efforts on deeply impoverished areas, and weight policies and funds toward deeply impoverished areas such as the "three regions" (Tibet, the four prefectures of Hotan, Aksu, Kashgar, and Kizilsu in southern Xinjiang, and the ethnic Tibetan areas in Sichuan, Yunnan, Gansu, and Qinghai) and the "three prefectures" (Liangshan Yi Autonomous Prefecture in Sichuan, Nujiang Lisu Autonomous Prefecture in Yunnan, and Linxia Hui Autonomous Prefecture in Gansu). We must adhere to current poverty alleviation standards, focus efforts on key areas, and work steadily toward our goal of realizing the "two assurances and three guarantees" (assuring the rural poor population that their food and clothing needs will be met and guaranteeing that they have access to compulsory education, basic medical services, and safe housing), thereby ensuring that poverty alleviation efforts are highly effective. We will make better use of the dynamic platform for monitoring government funds used in poverty alleviation to make sure that these funds are used more effectively. We will strengthen follow-up support for poor populations relocated from inhospitable areas, put policies for developing local industries and boosting employment in impoverished areas into practice, and maintain the overall stability of anti-poverty policies in order to consolidate our progress in poverty alleviation.

Advancing innovation-driven development and industrial upgrading

The real economy is the cornerstone of all major countries. In response to problems in China's real economy such as the need to boost capacity for innovation and the need to raise the quality of development, we should fully leverage our strengths in making structural adjustments through fiscal policy, further supply-side structural reform, and raise our economy's overall competitiveness. We will refine systems and mechanisms for encouraging and supporting basic research and original innovation, encourage enterprises to take the lead in taking on major national scientific and technological projects, and further expand the autonomy of research institutes and institutes of higher learning. We will explore new ways of using government funds to support development of the manufacturing sector, channel capital and resources toward key areas of strategic importance, concentrate on backing the development of new service platforms in key industries, and push industrial chains toward the medium-high end.

Promoting coordinated development between regions and between urban and rural areas

Development of urban and rural areas remains imbalanced, with rural areas lagging behind and regional disparities becoming increasingly evident. These are some prominent characteristics of China's development in the current stage, and problems that we must address as we advance high-quality development. With this in mind, we should improve related fiscal and tax policies, and develop policies, systems, and mechanisms to provide fiscal support for implementation of the rural vitalization strategy in an effort to promote integrated development between urban and rural areas and between regions. Laying greater emphasis on agriculture, particularly grain production, we will strengthen the development of high-quality farmland, address weak links in the water conservancy infrastructure of disaster-stricken areas, speed up development of an agricultural subsidy system geared toward ecological conservation, and enhance our capacity to guarantee our nation's food security. We will implement policies and measures aimed at supporting the production of hogs to stabilize production and supply to the market. We will press ahead with the three-year campaign to improve rural living environments, and drive the beautiful countryside initiative into the next stage. We will aid in the implementation of major national strategies for regional growth, acting promptly to formulate policies providing fiscal and tax support for ecological protection and high-quality development in the Yellow River basin, and follow through with policies and measures providing fiscal and tax support for the initial planning and construction of the Xiongan New Area, the development of the Guangdong-Hong Kong-Macao Greater Bay Area, and the revitalization of northeast China.

Stepping up pollution prevention and control and ecological improvement

While China has witnessed overall improvement in environmental quality, efforts to develop an ecological civilization are now in a crucial phase featuring heavy pressure and tasks, which means that we must continue to intensify environmental governance and protection. We must ensure that the orientation of our efforts does not change and the momentum does not diminish. We will focus on key areas and sectors, concentrate funds on fighting the emblematic battles against air, water, and soil pollution, and build upon achievements that have already been made in prevention and control. We will further advance pilot projects under the initiative to protect and restore mountain, water, forest, farmland, lake, and grassland ecosystems, and press ahead with projects to prevent and control natural disasters. We will continue to implement incentive policies for ecological conservation and restoration along the Yangtze Economic Belt, and move faster to establish trans-regional compensation mechanisms for ecological conservation in the Yellow River basin. We will carry out large-scale afforestation across the country, and improve systems for protecting natural forests. We will step up sandstorm prevention and control, as well as conservation and restoration of wetlands, forests and grasslands. Moreover, we will support the development of a system of nature reserves composed mainly of national parks.


Shoppers choosing daily necessities like vegetables and fruit in Youyi County, Heilongjiang Province on February 3, 2020. In an effort to prevent the prices of daily necessities from fluctuating as a result of the sudden outbreak, a series of measures have been adopted across the country to guarantee prices, quality, and supply.


Ensuring and improving public wellbeing 

Ensuring and improving public wellbeing represents the central goal of building a moderately prosperous society in all respects. Therefore, as we implement a proactive fiscal policy, our main responsibilities are to adopt targeted measures and shore up weaknesses in dealing with major, urgent, and challenging matters related to public wellbeing. We must focus on making our initiatives more inclusive, reliable, and capable of guaranteeing that the basic needs of the people are satisfied, and that basic living standards are maintained at critical junctures for people facing difficulties. At present, the employment situation is stable but under pressure, while systems providing public services like medical care, education, and elderly care still fall short of the expectations of the public. Under these circumstances, we should prioritize the stabilization of employment, improving policies that support employment and entrepreneurship and working to increase employment for key groups such as college graduates, rural migrant workers, and demobilized military personnel. We will consolidate mechanisms guaranteeing funding for compulsory education in urban and rural areas, support local governments in fixing weak spots and building capacity in compulsory education, and ensure that children of migrant workers living with their parents in cities have access to education. We will steadily increase old-age benefits, expedite unified nationwide planning of old-age pension schemes, and expand central regulation over basic old-age insurance funds for the employees of enterprises, ensuring that pension benefits are paid on time and in full. We will continue to raise government subsidies for resident medical insurance, and improve the capacity of primary-level governments, especially in poor areas, to provide healthcare services as well as the quality of these services. Sticking to the principle that housing is for living in, not for speculation, we will put in place long-term mechanisms to manage the real estate market, carry out extensive renovation of old residential communities in cities, advance central government-financed trials to develop the rental market, and promote the improvement of basic housing support systems.

IV. Upholding a spirit of hard work and frugality

In the face of a challenge like an increasingly acute imbalance between government revenue and expenditure, it is essential that we implement a higher-quality and more effective proactive fiscal policy while laying greater emphasis on structural adjustment. We must continue to make diligent efforts and do solid work, strengthen our sense of responsibility, and see that policies and measures for responding to difficulties and challenges are implemented with precision. By strengthening management, furthering reform, and enforcing discipline, we will work vigorously to ensure that relevant policies are effectively implemented, and high-quality economic development is promoted.

Tightening belts and practicing frugality 

China is still in the primary stage of socialism and will remain so for a long time to come - this basic element of our country's state has not changed. Meanwhile, a number of problems resulting from imbalanced and inadequate development have not been addressed, many important tasks that have a bearing on public wellbeing require more investment, and projects crucial to national development need to be advanced. No matter what heights we attain in development and the improvement of public wellbeing, we must never abandon the spirit of hard work and frugality. We must see that the need to tighten our belts is implemented in all necessary aspects and at every stage of financial work, make ongoing efforts to improve systems for managing and setting standards on official business expenditures, and reduce administrative costs. By strengthening oversight and implementation, we will put in place long-term mechanisms for ensuring that no one dares to, is able to, or has the desire to be extravagant and wasteful, thus economizing in all our activities.

Bolstering reform and improving systems 

Our capacity and effectiveness in fiscal governance is reflected by whether or not fiscal functions, policies, and funds are fully exercised. We will move faster to complete the tasks for reform of the fiscal and tax systems set forth at the Fourth Plenary Session of the 19th CPC Central Committee, which was held from October 28 to 31, 2019, and improve the efficacy of fiscal policies and the performance of government funds by furthering structural and institutional reforms. We will ensure that budgets are well formulated by focusing on major reforms, projects, and strategies set out by the CPC Central Committee, establish a sound system of standards for budgetary expenditures, and make the budget formulation process more scientific and precise. We will delineate the boundaries and clarify the functions of all types of transfer payments, see that general transfer payments are weighted toward areas with limited fiscal resources, look into implementing list-based management for transfer payments under shared fiscal powers, and improve mechanisms for regular evaluation and withdrawal of special transfer payments. We will enhance budget transparency and readily subject ourselves to public oversight so that governments at all levels are compelled to carry out their duties and functions with greater diligence. These efforts will provide strong institutional guarantees for effective implementation of a proactive fiscal policy.

Strengthening management and enforcing discipline

Lax management and discipline can easily lead to waste and misuse of funds and even breed corruption. The more complicated the fiscal and economic situation is, the more important it is to strictly enforce discipline and strengthen management in order to ensure that we perform our duties, exercise our authority, and conduct our work in line with regulations and that public funds are managed well and used appropriately. Finance departments should not only take the lead in strictly observing financial and economic laws, regulations, and rules, but also intensify oversight and inspection in this regard and hold those who violate laws, regulations, and discipline to account with strict measures, thus resolutely defending regulatory authority and maintaining sound order of the market economy. Focusing on key areas and weak links in work such as budget allocation and policy formulation as well as efforts to uphold clean government, we will improve internal control systems for government finance and strengthen constraints on the operation of financial power. We will keep a firm grasp on expenditures, upholding the rule of budgeting before spending and ensuring that we do not plan expenditures without a budget or in excess of the budget. We will see that adjustments and additions to budgets are strictly controlled, intensify dynamic monitoring of government funds, and have the courage to stick to our principles, making sure that we are both frugal and astute when it comes to managing our finances.

Boosting coordination and seeing through implementation

Different departments and policies in the system of national economic governance each have their own orientation and function. In order to give full play to the role of fiscal policy, it is essential to boost coordination between departments and policies. We should strengthen coordination between our fiscal policy and our monetary, employment, consumption, investment, industrial, and regional policies to make the most of their combined effects and prevent conflicts as much as possible. By doing so, we will foster a stable macroeconomic environment for market entities. We must strengthen communication and collaboration between finance departments and budgetary departments, ensure that the principal obligations of budgetary departments are fulfilled, and oversee and regulate budget enforcement and follow-up investigations of policy effectiveness. Due to the differences in economic development and financial resources between different regions, we should, under the premise of resolutely implementing the central government's unified policy, guarantee thorough and effective implementation of policies by taking regional differences into account, leaving no room for choice or flexibility. We must think in big picture terms by taking the whole nation into consideration, and give full play to the initiative of both the central government and local governments. In addition, we must become more adept at policy implementation and strive to fulfill tasks ahead of schedule, thus leveraging our ability to pool strength behind major undertakings more effectively.

Liu Kun is Minister of Finance of the People's Republic of China and Secretary of the ministry's CPC Leadership Group. 

(Originally appeared in Qiushi Journal, Chinese edition, No. 4, 2020)

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