An important incremental policy measure has been introduced. Recently, the Ministry of Finance arranged the use of 550 billion yuan from the remaining local government debt quota to enhance the general public budget capacity of counties and districts and support local efforts to expand effective investment, sending a clear signal that fiscal policy is stepping up countercyclical adjustment and intensifying efforts to stabilize growth.
China applies a quota management system to local government debt, which essentially sets a "ceiling" for local borrowing. The actual scale of local government borrowing cannot exceed this upper limit. The remaining quota refers to the difference between the statutory debt ceiling of local governments and the actual outstanding debt balance. This space is mainly created when localities strengthen fiscal revenue and expenditure management and arrange budget funds to repay maturing statutory debt. This means that, without changing the total quota, borrowing space has been freed up.
Making good use of the remaining local government debt quota allows an increase in the total issuance of local government bonds without going through the procedure of seeking National People's Congress approval to raise the statutory local government debt ceiling. It is therefore regarded as "reserve ammunition" for proactive fiscal policy. Since 2022, with the approval of the State Council, the Ministry of Finance has repeatedly used this important policy tool, arranging remaining local government debt quotas of varying sizes to support localities in resolving debt from existing government investment projects and clearing government arrears owed to enterprises.
In response to problems emerging in current economic operations, the recent State Council executive meeting proposed that "the intensity of countercyclical macro policy adjustment should be increased, the economy should be promoted to continue developing toward new and better directions, and efforts should be made to accomplish the annual economic and social development targets," and it made arrangements for both existing and incremental policies. Arranging the use of the remaining local government debt quota is undoubtedly a pragmatic and effective important incremental policy.
On one hand, without raising the national total debt ceiling, it enables a relatively rapid arrangement for localities to issue additional government bonds of a certain scale, effectively strengthening local fiscal capacity and injecting more momentum into local economic and social development, thus better balancing growth stabilization and risk prevention. The quota arranged this time is larger than last year, reflecting the intention to strengthen macro regulation. Overall, this move can effectively offset downward economic pressure, stabilize market expectations, and stimulate economic vitality.
On the other hand, this arrangement for using the remaining local government debt quota has clearly focused investment directions, balancing the strengthening of grassroots fiscal capacity with the expansion of effective investment. Improving the effectiveness of macro regulation requires that "ammunition" be directed precisely, so the structure of fund use is crucial. In previous rounds of activating remaining debt quotas, the uses of funds included supplementing local comprehensive fiscal capacity and debt resolution. According to the arrangement, among the debt remaining quotas issued to localities this year, the remaining general debt quota will be allocated entirely to counties and districts for the specific purpose of improving the general public budget capacity of counties and districts; the remaining special debt quota will be allocated to regions with actual project funding needs in the fourth quarter of this year, with a tilt toward major economically strong provinces, to support the priority funding needs of ongoing projects, while new projects will focus on key areas such as the construction of the "six networks."
Given the current reality of pressure on local finances and investment still needing to be strengthened, such direction of funds is of great significance for alleviating the contradiction between local revenue and expenditure, firmly securing the "three guarantees" at the grassroots level, optimizing and improving the structure and efficiency of investment, and better unleashing the potential of effective investment.
As the funds available to local governments increase, how to give full play to the proper effect of the funds becomes key. General bond funds directed to counties and districts must strengthen budget constraints and better guarantee basic livelihoods and grassroots operations. Special bonds must be managed across the entire chain, project review must be strengthened, preliminary project work must be made deeper and more solid, and conditions for commencement should be met as soon as possible to avoid idle funds and form physical work volume quickly, ensuring that policies land early and take effect early.
Existing policies should enhance implementation effectiveness, while incremental policies should be introduced promptly to exert force. From optimizing fiscal-financial coordination policies to boost domestic demand and implementing interest subsidy policies for residents' home purchase loans, to activating the remaining local government debt quota; from lowering the pledged supplementary lending rate and expanding the supported areas of pledged supplementary lending, to increasing relending quotas for scientific and technological innovation, technological upgrading, and support for agriculture and small and micro businesses, a package of policy measures is being implemented successively. This will help China's economy operate smoothly and enhance its vitality, providing a more solid guarantee for achieving the annual economic and social development targets.
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