China unveils steps to ease fiscal strains on local governments

Headquarters of China Evergrande Group in Shenzhen
Men ride bicycles past construction sites in Shenzhen, Guangdong province, China September 26, 2021. REUTERS/Aly Song/File Photo

BEIJING, June 13 (Reuters) - China's cabinet unveiled some steps on Monday to improve the allocation of resources among local governments to help ease their growing fiscal strains and debt risks, amid efforts to support the slowing economy.

In a document on fiscal reform below the provincial level, the State Council laid out steps to divide fiscal revenues and spending obligations among local governments, and transfer payments allocations.

China has in recent years taken measures to shore up finances of debt-laden local governments, partly via increased transfer payments from the central government.

But local governments still faced problems such as "unreasonable division" of fiscal revenues and spending responsibilities, the cabinet said.

The cabinet has pledged to increase annual tax cuts to 2.64 trillion yuan ($392.09 billion), from an initial 2.5 trillion yuan, in a bid to support the slowing economy.

The central government would boost its transfer payments to local governments to nearly 9.8 trillion yuan this year to help offset any hit on local revenues, the finance ministry has said.

City and county-level authorities would have more stable sources of tax revenue, including those from finance, electric power, petroleum, railway, highways, the cabinet said.

China would establish a reasonable mechanism for transfer payments, and gradually increase the scale of general transfer payments, prioritising underdeveloped areas, the cabinet said.

Local governments would increase spending on education, scientific and technology research, social security, food security, as well as construction of major infrastructure projects, it said.

Local governments needed to step up the management of their debts through increasing revenues, cutting costs and selling assets, the cabinet said.

China would also improve the debt quota mechanism for local governments, under which their special debt quota should match revenues and project income, it added.

(This story corrects to add dropped letter 's' in headline)

($1 = 6.7331 Chinese yuan renminbi)

Reporting by Stella Qiu, Ryan Woo and Kevin Yao; Editing by Catherine Evans and Alex Richardson

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