Photo: Xinhua

China will set up a special transfer payment mechanism to ensure that the newly increased fiscal funds this year will directly benefit businesses and people, according to a report on the government’s website Wednesday.

It is important to ensure that this year’s increased fiscal funds go straight to primary-level governments and directly benefit businesses and people, said the State Council after an executive meeting chaired by Premier Li Keqiang on June 9. The effort will help the six priorities where stability is the key and the six fronts where protections are needed.

First mentioned by Beijing in July 2018, the six fronts refer to the stabilization of the job market, financial system, external trade, foreign capitals, investments and market expectations.

Six priorities were suggested by Chinese leaders on April 17, 2020, referring to the security in employment, people’s livelihoods, the market system, food and energy supply, industrial supply chains and public services.

In 2020, the government will cut taxes and fees by 2.5 trillion yuan (US$352.11 billion). This will effectively ease the difficulties faced by businesses, especially micro, small, and medium-sized ones, and meet the pressing needs of people in need. Yet it will also lead to sizable shortfalls in the fiscal resources of prefecture and county governments, according to the meeting.

The 2 trillion yuan in new fiscal funds, made available by raising the budget deficit and issuing special treasury bonds for Covid-19 control, will go straight to prefecture and county governments. This will support the local governments in providing relief to the smaller firms, self-employed individuals and vulnerable groups hit hardest by Covid-19, enhancing infrastructure building, particularly in public health, and meeting expenditures for Covid-19 control.

General Secretary Xi Jinping stressed the need to bolster macro policy buffers in coping with shocks caused by the Covid-19 epidemic. He urged a more proactive and impactful fiscal policy to see that the fiscal money is put to best use and effectively stabilize economic performance.

Last month, Li said in the Government Work Report that the deficit-to-GDP ratio this year is projected at more than 3.6%, up 1 trillion yuan over last year. In addition, 1 trillion yuan in government bonds for Covid-19 control will be issued. The 2 trillion yuan will be transferred in full to local governments, and a special transfer payment mechanism will be established to ensure that funds go straight to ensure employment, meet basic living needs, and protect market entities.

Market liquidity

China’s central bank on Wednesday continued to pump cash into the banking system via reverse repos to maintain liquidity.

The People’s Bank of China (PBoC) injected 60 billion yuan into the market through seven-day reverse repos at an interest rate of 2.2%, according to a statement on the website of the central bank.

The move aims to keep liquidity in the banking system at a reasonably sufficient level, the central bank said. As no reverse repos matured Wednesday, the operation led to a net injection of 60 billion yuan into the market.

A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.
China will pursue a prudent monetary policy in a more flexible and appropriate way, according to this year’s government work report.

The country will use a variety of tools, including reserve requirement ratio cuts, interest rate reductions and re-lending, to enable the M2 money supply and aggregate financing to grow at notably higher rates than last year, said the report.

Freedom of the Air in Hainan

China’s aviation authority on Tuesday unveiled a plan to trial the Seventh Freedom of the Air in the Hainan Free Trade Port (FTP), a move aimed at boosting the opening-up of the air-transport industry.

The Seventh Freedom of the Air allows foreign carriers to operate flights between two foreign countries without the need to touch down in the airline’s home country.

On each route enjoying the Seventh Freedom, the maximum number of passenger and cargo flights will be seven per week, according to the plan issued by the Civil Aviation Administration of China.

The aviation plan is intended to implement one aspect of a broader master plan, which was made public on June 1, to build the southern island province into a high-level FTP of global influence by the middle of the century. 

Special commercial zones in Tianjin

China’s Tianjin Municipality has received approval from the State Council to set up three new comprehensive bonded areas, or free trade zones, in its Binhai New Area, local authorities said Wednesday.

Companies in the three free trade zones, which include Tianjin Export Processing Zone, Tianjin Dongjiang Free Trade Port Zone, and Tianjin Bonded Logistics Park, will enjoy favorable taxation policies and are managed by customs officials.

Together with the Tianjin Binhai New Area Comprehensive Free Trade Zone, Tianjin currently has four comprehensive bonded areas covering 13.41 square kilometers.

Company news

Bank of Communications, a Hong Kong-listed Chinese bank, plans to redeem all of its US$2.45 billion offshore preference shares on July 29.

The bank said it had received a reply from the China Banking and Insurance Regulatory Commission, which did not raise an objection for the bank to redeem its offshore preferred shares, which were issued by the bank in the offshore market five years ago.

The story was written by Xu Jiangshan and Liu Licong and first published at

Xu Yuenai is a Beijing-based columnist specializing in international relations.