Breakdown of China's Central and Local Governments' Budgets 2020-21
China’s Ministry of Finance released its report on execution of central and and local budgets for 2020 and draft budgets for 2021 on March 5. Here’s a breakdown of the key points from the document. You can access the document here.
I. Revenue and Expenditure Areas in 2020
The national general public budget was 18.289492 trillion yuan, down 3.9%. Some 2.613332 trillion yuan of funds were added from other sources. Total revenue, thus, was 20.902824 trillion yuan. In comparison, expenditure of national general public budget was 24.558803 trillion yuan, representing 99.1% of the budgeted figure and an increase of 2.8%.
In this, expenditure in the central government’s general public budget totaled 11.841087 trillion yuan. The key spending areas were as follows:
General Public Service Expenditures were 173.521 billion yuan, 100.8% of the budgeted figure.
Diplomatic spending was at 51.406 billion yuan, 94.7% of the budgeted figure.
National defense spending was 1.267992 trillion yuan, 100% of the budgeted figure.
Public security expenses was at 183.59 billion yuan, 100.2% of the budgeted figure.
Spending on education came to 167.365 billion yuan, 98.5% of the budgeted figure.
Spending on science and technology amounted to 321.648 billion yuan, 100.6% of the budgeted figure.
Spending on stockpiling grain, edible oils, and other materials was 122.457 billion yuan, 100.7% of the budgeted figure.
Interest payments on debt was at 553.895 billion yuan, 102.6% of the budgeted figure.
On Revenue and Expenditure Mismatch: “On the whole, the outlook for government revenue and expenditure in 2021 appears quite grave, with even greater difficulty in balancing the budget and risks in key areas such as debt that cannot be overlooked.”
II. 2021 Estimates and Priorities:
Expenditure in the national general public budget is projected to be over 25 trillion yuan this year, up 1.8%. Total government expenditure will be higher than last year, and the focus will remain on enhancing support for ensuring employment, meeting basic living needs, and protect ing market entities on funding major national strategic tasks and on keeping major economic indicators within an appropriate range.
Tax cuts and easing of burdens for medium and small businesses.
the central government will cut its spending and make adjustments to its spending structure in order to increase transfer payments to local governments. A total of 8.337 trillion yuan will be transferred to local governments, a slight increase compared to 2020. Of this, general transfer payments to local governments will be increased by 7.8 %, which is significantly higher than last year.
This year 3.65 trillion yuan of special purpose bonds will be issued, a 100 billion yuan decrease compared with last year.
No further Covid-19 bonds will be issued.
There is a commitment to curtail central and local government spending, particularly on non-obligatory items. The document also says that “subsidies for key projects and policy backed subsidies will be reviewed and arranged.” But there is no figure or target attached to this.
There’s also an emphasis on precise targeting of government funds and linkages to performance evaluation in terms of use of funds.
III. Main Policy Areas for Spending in 2021:
Innovation-driven development and industrial upgrade:
“In 2021, central government expenditures on basic research will increase by 10.6%. The majority of this funding will be put into the Natural Science Fund and used to support research institutes, scientific and technological innovation centers, and talented personnel in the field of basic research.”
“While fully exerting the guiding role of government investment funds, we will encourage more nongovernmental investment, thereby speeding up the development of industries like integrated circuits, new materials, and next generation information technology.”
“We will continue to implement the policy of granting an extra tax deduction of 75 on enterprises R&D costs and raise this further to 100 for manufacturing enterprises, thus using preferential tax treatment to encourage greater investment in R&D.”
Expanding Domestic Demand:
This begins with a discussion over policy tools like taxation, social insurance, and transfer payments being used in regulating income and ensuring better income distribution.
Then there’s a commitment to improve “policies for developing education, elderly care, healthcare, and childcare services, so as to make people less worried about spending money and more willing and able to spend.”
Next, there’s a pledge to “support accelerated efforts to address deficiencies in the rural distribution system, facilitate the flow of industrial goods into rural areas and of agricultural products into the cities, and ensure effective linkage between production and sales.” In addition, there’s commitment to “improve purchase subsidy policies for new energy vehicles and support the construction of more charging infrastructure and the use of new energy vehicles for urban public transport.”
While talking about wasteful expenditure by local governments, the central government is pledging more money to boost investments. indiscriminately running up debts to launch new projects. “A total of 610 billion yuan will be earmarked in the central government budget, an increase of 10 billion yuan over last year for continuing to support major projects that promote coordinated regional development and for pushing ahead with other major projects such as the development of new infrastructure and new urbanization initiatives.”
Also, “the central government will allocate 11.7 billion yuan to support the development of foreign trade, an increase of 10.2%, in order to spur innovative development in this regard.
Supporting urbanisation:
General transfer payments from central to local governments will be expanded to support urbanisation. The figure is “1.9087 trillion yuan for ensuring equal access to basic public services, an increase of 11%; 337.9 billion yuan in rewards and subsidies for the mechanism to ensure basic funding for county level governments, an increase of 13.4%; and 146.6 billion yuan for old revolutionary base areas, areas with large ethnic minority populations, and border areas, an increase of 10.1%.”
The central government will put in place a 35 billion yuan rewards fund for supporting the process of granting urban residency to people with rural household registration living in urban areas, improve mechanisms for sharing related costs, and ensure that these people have access to basic urban public services.”
On Agriculture, Rural Areas & Pollution:
Among the many things, the central government will allocate 156.1 billion yuan in the follow up rural revitalization assistance fund (formerly the special poverty alleviation fund) fund), an increase of 10 billion yuan, with more funding tilted toward areas facing tough challenges in consolidating progress in poverty alleviation and limited foundations for rural revitalization.”
“A total of 27.5 billion yuan will be allocated for the prevention and control of air pollution, an increase of 10%, with priority given to encouraging the use of clean energy sources for winter heating in northern China and keeping our skies blue.”
“Another 21.7 billion yuan will be allocated for the prevention and control of water pollution, a rise of 10.2 % over last year. The focus in this regard will be on the prevention and control of water pollution in the Yangtze River basin and other key river basins.”
In addition to this, “allocate 4.4 billion yuan, an increase of 10%, for the prevention and control of soil pollution, supporting efforts to treat and restore contaminated soil.”
Employment, Education and Health:
The central government will allocate 55.9 billion yuan in employment subsidies, an increase of 2 billion yuan.
Spending on education to be kept at 4% of GDP. As part of this, the central government will allocate 177 billion yuan as subsidies for compulsory education in urban and rural areas, an increase of 4.3%. In addition, the central government will allocate 19.8 billion yuan in support of the development of preschool education, an increase of 5.3%, which will be used to increase the supply of public interest preschool education resources. Also, funding of initiatives devised to enhance the quality of modern vocational education will reach 27.7 billion yuan, an increase of 7.7 %. In addition, 66 billion yuan will be allocated for student financial aid, an increase of 16.3%.
The central government will allocate 147.3 billion yuan in aid subsidies for groups in need, in an effort to help local governments meet the basic needs of people facing financial difficulty.
“We will increase per capita government subsidies for basic medical insurance for rural and non working urban residents by 30 yuan, to a figure of 580 yuan per person per year. Personal contributions to medical insurance will be raised by 40 yuan, to 320 yuan per person per year, and can be applied as tax deductions in accordance with regulations. Annual per capita government subsidies for basic public health services will be raised by 5 yuan to reach 79 yuan per person per year.”
IV. Spending Estimates for 2021
Overall, central government expenditures are projected at 3.5015 trillion yuan, down 0.2%. This money will be earmarked for spending as follows:
General Public Services: 147.025 billion yuan, down 14.1 %;
Foreign Affairs: 50.414 billion yuan, a drop of 1.9%;
National Defense: 1.355343 trillion yuan, up 6.8%;
Public Security: 185.092 billion yuan, up 0.7%;
Education: 166.344 billion yuan on education;
Science and Technology: 322.71 billion yuan (national spending, which includes local outlays, will rise by 3.3%);
Debt Interest payments: 599.824 billion yuan, up 8.3%.
Around 8.337 trillion yuan will be transferred to local governments.
From the local governments’ perspective, total revenue for 2021 is estimated at 20.6405 trillion yuan. Expenditure in the local general public budget is projected to be 21.4605 trillion yuan, up 1.9%. This will create a deficit of 820 billion yuan at the local level, a decrease of 160 billion yuan compared with 2020, which will be supplemented through the issue of general purpose local government bonds.”