China will continue to keep liquidity at a reasonable level and not adopt a massive stimulus to ensure that increased fiscal funds are channeled to the real economy and small businesses, Premier Li Keqiang said on Monday.
The authorities will use structural monetary policy tools to make sure money goes where it is most needed and financial support will be made more accessible, according to the State Council's executive meeting held on Monday.
Small and medium banks will be supported to employ big data in better meeting the needs of businesses and transmission mechanisms improved to benefit as many companies as possible. Reform on the loan prime rate (LPR) will be deepened to guide lending rates further downward.
The re-lending and re-discount quota will be fully utilized to issue concessional loans, develop new credit instruments for micro and small businesses and support the issuance of credit-backed loans. These measures will help boost financing for more micro and small firms at a lower cost this year.
"Lending support from financial institutions to micro and small businesses should be set at an appropriate degree so that such support will be sustainable," Li pointed out. "While keeping such lending reasonably sufficient, logjams in monetary policy transmission must be removed. Financial risks should be guarded against to make banking services for supporting the real economy more sustainable.
"In view of the COVID-19 impacts, financial institutions have notably intensified their support for the real economy, especially for micro, small and medium-sized businesses. Their efforts have paid off. Unlike previous unforeseen situations, the novel coronavirus has hit smaller businesses directly. The financial and fiscal support has been instrumental in staving off massive business closure and job losses."
Special transfer payment mechanism
Premier Li has mandated the establishment of an effective and secured special transfer payment mechanism that all new funds go straight to prefecture and county-level governments at the earliest possible time.
By early August, among the two trillion yuan of increased fiscal funds of 300 billion yuan, had mostly been used for tax and fee cuts; and out of the 1.7 trillion yuan under the special transfer payment framework, apart from the reserved fund of a set proportion raised from the special treasury bonds for COVID-19 control, 97.8 percent of the funds had been distributed to prefecture and county-level governments.
The enforcement of this policy has effectively boosted tax and fee cuts and bolstered fiscal resources at the primary level. The policy is making a difference in supporting market entities, stabilizing jobs and ensuring people's livelihood, as well as driving the economic rebound.
"The special transfer payment mechanism has delivered notable outcomes, which shows the decision is right and the intensity appropriate," Li said.
Going forward, the prefectures and counties will be guided to promptly channel allocated funds to market players and people's livelihoods. Steps will be taken to redress any tardiness in fund allocation or utilization.
The allocation, disbursement and use of funds will be tracked on a regular basis. A special treasury account reconciliation mechanism will be set up for the directly funneled funds to ensure clear bookkeeping, detailed usage, and matching accounts.
Rigorous fiscal discipline
Rigorous fiscal discipline must be enforced. Any fraudulent reporting, false claims, retention and embezzlement of the funds will be strictly dealt with. The State Council meeting urged making the macro policies more targeted and effective and the creation of a more enabling environment to help market entities survive and thrive. It called for intensified reform, the firming up of confidence for development and taking of concrete steps to fulfill this year's targets and tasks for economic and social development.
"With full awareness of various uncertainties, we must press ahead with all the reform and opening-up measures and make solid efforts to run our own affairs well. We must see that the policies introduced are delivered to the full extent, and also develop policy reserves for the coming year," Li said.