China to focus on tax cuts, unveil fiscal stimulus to support economy

China will step up fiscal spending this year to support its economy, focusing on further cuts in taxes and fees for small firms, officials at the finance ministry said on Wednesday.

Mounting pressure on the world's second-biggest economy pushed growth last year to its lowest since 1990 even as Beijing stepped up stimulus measures and spurred banks to extend more loans.

The government may unveil more fiscal stimulus during the annual parliamentary meeting in March, including bigger tax cuts and more spending on infrastructure projects, economists say.

China's fiscal spending rose 8.7 per cent to 22.1 trillion yuan ($3.3 trillion) in 2018, while revenue gained 6.2 per cent to 18.3 trillion yuan, said Li Dawei, an official at the finance ministry.

China achieved its fiscal revenue target for 2018 despite extensive tax cuts last year, Li added.

Beijing delivered about 1.3 trillion yuan worth of cuts in taxes and fees last year.

Finance Minister Liu Kun said earlier this month that China will further lower taxes and fees this year. The government is also studying a plan to reduce social security fees to lighten the burden on small companies, Liu said.

Policy insiders also expect Beijing to cut the value-added tax, which ranges from 6 per cent for the services sector and 16 per cent for manufacturers.

Policymakers' pledge for more aggressive tax reductions in 2019 has fanned expectations among economists that the annual budget deficit ratio could be lifted to 3 per cent of gross domestic product.

In 2018, the government lowered the annual budget deficit target to 2.6 per cent of GDP from 3 per cent in 2017 - the first cut since 2012.

The finance officials speaking to reporters on Wednesday did not comment on China's actual budget deficit in 2018.

China will "appropriately" step up fiscal spending in 2019, said Hao Lei, an official at the finance ministry.

At the same time, fiscal revenue growth is expected to slow this year, Li said.

Sources previously told Reuters that the budget deficit target could rise from 2.6 per cent of GDP but is likely to be kept below 3 per cent this year.

LOCAL INDEBTEDNESS

The slowdown in China has also raised concerns of rising indebtedness among local governments as they ramp up measures to support growth.

China will be more strict in curbing local government bond risks and any form of hidden debt, Hao said.

Outstanding local government debt stood at 18.39 trillion yuan at the end of 2018, Hao said, adding that local government debt risks remain manageable overall.

That compares with total outstanding local government debt of 16.47 trillion yuan at the end of 2017, which included 10.33 trillion yuan of outstanding local government general debt and 6.14 trillion yuan of outstanding local government special debt, according to the finance ministry's 2018 work report.

At the end of 2018, the State Council, or cabinet, approved a 2019 quota for new local government bond issuance of 1.39 trillion yuan, enabling local authorities to start issuing debt from January.

Local government bond issuance typically begins in March, following approval of quotas at the National People's Congress, or parliament.

Special purpose local bond issuance is expected to be completed by September, Hao said.

China must be on guard against "black swan" risks while fending off "grey rhino" events, President Xi Jinping said on Monday.

A "black swan" event refers to an unforeseen occurrence that typically has extreme consequences, while a "grey rhino" is a highly obvious yet ignored threat.

Local governments and state organizations should find a balance between stabilising growth and fending off risks, controlling the pace and intensity of such policies, Xi warned.