Summary

The year 2022 is an important year for China as it embarks on a new journey of building a modern socialist country in all respects and forges ahead toward the second Centenary Goal. In the first half of 2022, facing a complex and grim situation abroad and formidable tasks of advancing reform, promoting development and maintaining stability at home, under the strong leadership of the Communist Party of China (CPC) Central Committee with Comrade Xi Jinping at the core, local authorities and government departments across the country earnestly implemented the decisions and plans of the CPC Central Committee and the State Council, effectively coordinated COVID-19 prevention and control with social and economic development, intensified macroeconomic regulation, effectively implemented a package of policies and measures and did a solid job in ensuring “stability on six fronts” and maintaining “security in six areas”. The COVID-19 resurgence has been effectively contained, the national economy has stabilized with an upward growth, people's livelihoods have been effectively guaranteed, the momentum for high-quality development has continued, and overall social stability has been maintained. In the first half of 2022, China's gross domestic product (GDP) grew by 2.5 percent year-on-year, with the GDP in the second quarter increasing by 0.4 percent year-on-year. Major indicators stopped their downward trend and achieved positive growth.

Since the beginning of 2022, finance departments at all levels have followed the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, carried forward the great founding spirit of the CPC, upheld the underlying principle of pursuing progress while ensuring stability, pursued the full, accurate and comprehensive implementation of the new development philosophy and accelerated the fostering of a new development paradigm. We have earnestly implemented the requirements of “proactive fiscal policy with higher efficiency, accuracy and sustainability”, strengthened the coordination of financial resources, implemented a new package of tax-and-fee policies to support enterprises and balanced stable growth and risk prevention. We have appropriately reduced the fiscal deficit ratio, rationally arranged the scale of debts, ensured the intensity of fiscal expenditures, optimized the focus and structure of expenditures, increased funding allocations to governments at lower levels, continued to improve people's livelihoods, strictly enforced fiscal and economic disciplines, and striven to sustain stable macroeconomic performance.

1. We intensified efforts to boost the vitality of market entities by easing their financial burdens and difficulties. We integrated temporary measures with institutional arrangements and applied policies on tax reductions, refunds and deferrals at the same time. We vigorously improved the value-added tax (VAT) credit refund scheme and refunded VAT credits on a large scale. We raised the tax deduction coverage of R&D costs for small and medium-sized sci-tech enterprises to 100 percent. We granted a temporary exemption on VAT payments to small taxpayers and a temporary reduction to part of the vehicle purchase tax. We extended tax and fee reduction policies that supported the manufacturing sector, micro and small-sized enterprises and self-employed individuals and expanded the scale and scope of the policies. We strengthened financing support for micro, small and medium-sized enterprises (MSMEs) and comprehensively used financing guarantees, interest subsidies, and relevant rewards and fiscal assistance to guide and leverage the flow of financial resources to the MSMEs. We enhanced and expanded temporary deferrals of social insurance premiums. We intensified efforts to implement the employment-first policy, continued the policy of refunding unemployment insurance premiums for enterprises that make no cuts or minimal cuts on staff numbers, and provided interest subsidies as well as relevant rewards for guaranteed loans for startups. Tax refunds and cuts are expected to total 2.64 trillion yuan this year, where VAT credit refunds will account for about 1.64 trillion yuan.

2. We maintained appropriate expenditure intensity and optimized the structure of fiscal expenditures. The fiscal deficit ratio for 2022 was appropriately reduced to around 2.8 percent. Boosted by the profit remittances of state-owned financial institutions and state monopoly business operations in recent years turned over in accordance with the law, plus the funds transferred from the Central Budget Stabilization Fund, the expenditures in the national general public budget were set at 26.71 trillion yuan, an increase of more than 2 trillion yuan over last year, putting significantly greater fiscal resources at our disposal. We optimized the structure of fiscal expenditures, gave priority to key projects that have been included in the outline as well as key special plans of the 14th Five-Year Plan (2021-25), made appropriate and proactive investments in infrastructure, and increased support for scientific and technological breakthroughs, environmental protection, people’s basic livelihoods and modern agriculture as well as for major regional development strategies.

3. We rationally arranged special-purpose local government bonds to ensure the construction of key projects. We kept the government leverage ratio generally stable and set the quotas for the newly-added special-purpose local government bonds at 3.65 trillion yuan, equal to that of the previous year. After being reported to the Standing Committee of the National People's Congress (NPC) for the record, 1.46 trillion yuan of special-purpose bond was issued in advance in December 2021, and all the special-purpose bond funds used for project construction had been allocated to the local governments by the end of March 2022. We stressed the principle of “funds following projects”, and called for efforts to prepare sufficient projects eligible for special-purpose bonds, take full policy advantage of using special-purpose bonds as the capital for major projects, optimize the investment fields of special-purpose bonds and include new infrastructure and new energy projects for priority support. We urged localities to put the use of funds under strict supervision, avoid “spreading the funds too thin” and give priority to the projects that are under construction or can be started as soon as possible with a view to increasing effective investment. From January to June in 2022, local governments issued a total of 3.41 trillion yuan of special-purpose bonds, nearly equal to their committed quotas.

4. We increased funding allocations to governments at lower levels and supported local governments in safeguarding the "three priorities" of people’s basic well-being, payment of salaries and normal government functioning. We substantially increased the scale of the transfer payments, especially the transfer payments, from the central government to local governments, -and gave priority to regions with financial difficulties and underdeveloped regions. Transfer payments from the expenditures in the central general public budget to local governments reached 9.8 trillion yuan, which represented a growth of 18 percent, or around 1.5 trillion yuan, and was the largest increase in recent years. Provincial-level financial departments also maximized fiscal support for lower level governments by implementing policies to help enterprises alleviate difficulties and to ensure people’s basic well-being, payment of salaries and normal government functioning. Efforts were also made to improve a regular mechanism for direct fiscal fund allocation, expand the scope of direct funding and promote the rapid and accurate allocation and use of funds.

5. We persisted in living on a tight budget and advanced the frugality campaign in government departments. The central government departments took the lead in tightening the belt, focused on ensuring mandatory and urgent expenditures, strictly controlled general expenditures, and strengthened budgetary management of the “three public expenses” (official expenses on buying and using cars, overseas travel and hosting meetings), to reduce administrative operating costs and cut the expenditures in departments of the central government by 2.1 percent in 2022. Local governments at all levels kept public expenses on a tight budget to set aside more financial resources for improving people’s basic livelihoods and supporting the development of market players. We improved the mechanism for restraint of fiscal expenditures, made good use of the fiscal reserves and assets sitting idle, promoted the sharing and pooling of assets among administrative institutions, constantly enhanced the system for living under tight budgets, and strengthened evaluation of related implementation.

6. We tightened fiscal and economic disciplines and rectified the financial order. We strictly implemented fiscal and economic laws, regulations and administrative provisions, tightened institutional constraints and resolutely safeguarded the authority of the discipline system. We properly managed and used budgetary funds and regulated revenues and expenditures. We improved the tax collection and management system and severely cracked down on tax evasion and fraud in accordance with the law. We further regulated financial auditing and curbed financial fraud. We launched special campaigns to rectify local fiscal and economic order, strictly investigated and punished violations, and set red lines for financial and economic disciplines that cannot be crossed.

In the next step, the finance departments will conscientiously implement the decisions and plans of the CPC Central Committee and the State Council, adhere to the principles of stability first and seeking progress while maintaining stability, implement the requirements of bringing COVID-19 under control, stabilizing economic growth and ensuring the security of development, efficiently coordinate COVID-19 prevention and control with economic and social development, and ensure both development and security. We will strengthen macroeconomic policy regulation, prepare incremental policy tools, make arrangements ahead of time, speed up the pace, and intensify efforts in a timely manner. We will continue to ensure “stability on six fronts” and maintain “security in six areas”, make constant efforts to improve people's lives, keep the major economic indicators within the appropriate range, and take concrete actions to prepare for the successful convening of the 20th CPC National Congress.