Bloomberg:

Earlier, you mentioned special bonds and how China is increasing them at the local level to deal with the impact of the COVID-19 pandemic. Is there concern that this will add to local debt pressure, and how can you balance the need for growth with the need to address problems with debts? Thank you.

Ning Jizhe:

This question is very important. I would like to invite Mr. Cong to answer it.

Cong Liang:

Thanks for your question. This is an excellent question, which focuses on a hot issue that has raised a lot of concern. Maintaining a reasonable debt level is conducive to social and economic development, and appropriate social and economic development is also conducive to controlling debt levels. I want to use some data to answer your question from three perspectives:  

First, we will be realistic and raise or reduce debt levels in line with different situations. When the economic performance is declining and demands in domestic and foreign markets are decreasing or contracting, it is necessary to increase government debt levels and increase effective demand appropriately. However, if the economic performance is increasing and demands in domestic and foreign markets are sufficient, government debt levels will be appropriately reduced to reduce total demands. This is something inherent in counter-cyclical adjustments. Currently, raising government debt levels is an extraordinary measure for an unusual time, which has been explained clearly in the government work report delivered by Premier Li Keqiang. Given the sudden impacts caused by the COVID-19 pandemic, a proactive and impactful fiscal policy must be more effective. These fiscal and tax measures were made after careful research, repeated calculations, and comprehensive consideration. They are in line with both China's economic development and the need for debt risk prevention and control. The extra one trillion yuan of fiscal deficit and the one trillion yuan of government bonds for COVID-19 control will be transferred in full to local governments and go straight to prefecture and county governments to directly benefit businesses and people. These funds will be primarily used to ensure employment, meet basic living needs, and protect market entities. This includes giving support to cut taxes and fees, reduce rents and interest on loans, and increase consumption and investment. These special local government bonds should produce benefits, and the financial size shall be balanced with project benefits, which will give rise to financial assets. 

Second, we shall understand this issue in a dialectical manner. China's current deficit ratio is not very high globally. In response to the COVID-19 pandemic, deficit ratios among nations are increasing dramatically. The IMF expects that global fiscal deficits will increase from 3.7% in 2019 to 9.9% in 2020, and deficits in developed economies will jump to 10.7% from 3%, with the United States increasing by nearly 10 percentage points to 15.4%, France to 9.2%, the Untied Kingdom to 8.3%, and Japan to 7.1%. The average fiscal deficits of emerging markets and middle-income countries will reach around 9%. Therefore China's overall deficit level is relatively low. 

Third, we shall be cautious to ensure that the debt risk is controllable overall. The CPC Central Committee and the State Council have attached great importance to the debt risk prevention and control, and regard it as one of the major tasks of the "three tough battles" (preventing financial risks, reducing poverty and tackling pollution). China's government debt ratio was 38.5% by the end of 2019, much lower than that of major developed and emerging economies. For example, the debt ratio of the United States was 106%, the European Union 80%, Japan 238%, India 69%, and Brazil 92%. 

In general, it is feasible, safe, and necessary to raise deficit ratio appropriately and issue special bonds to deal with the COVID-19 pandemic. Such fiscal policies are not only conducive to stabilizing China's economy, but also the global economy. Thank you.  

Ning Jizhe:

Please allow me to add one more point. To deal with the relationship between debt and economy, and give full play on the proactive role of local government debt in boosting social and economic development, the funds coming from the special bonds at the local level will be used for projects in three categories. First, they will be used for major strategic projects designed by the CPC Central Committee and the State Council. Second, they will be used for public welfare projects with certain returns. Third, they will only be used for capital expenditure, not for running expenses. These funds will mobilize private capitals to promote effective investment, expand domestic demand, and maintain growth, which will produce more effective assets.  

I want to make clear that the market economy, from the perspectives of accounting and statistics, is an economy of assets and liabilities. Every company has a balance sheet, so does a country. According to requirements of the Third Plenary Session of the 18th CPC Central Committee, the National Bureau of Statistics has compiled national balance sheets. The latest balance sheet shows that China's total assets have surpassed 1,300 trillion yuan. This asset did not come out of thin air. It is the achievement of years of investment and development. Our infrastructure construction, including transportation, telecommunication, energy, water conservancy, and municipal engineering, has produced effective assets thanks to the support of such investment. We have the most complete industrial system in the world with the most sophisticated classification. Therefore, we will promote some reasonable debt investment to produce a large number of effective assets, which will lay a more solid foundation for economic development and ensure people's well-being. Thank you.