As China considers delaying the annual meeting of its legislature amid the coronavirus epidemic, one big question is how such a rare move will affect fiscal policy at a time when the faltering economy badly needs support.
The annual session of the National People's Congress and a parallel meeting of the country's top political advisory body is the most important annual political event in China. Bringing together nearly 3,000 delegates from across the country, the annual NPC meeting in Beijing passes legislation, approves the national budget and sets key economic targets for the year.
This year's NPC meeting is scheduled to start March 5 and last about 10 days. But as China grapples with a deadly epidemic that has sickened more than 74,000 people, lawmakers have suggested delaying the session. A meeting to decide the issue will be held later this month, the official Xinhua News Agency reported Monday.
A postponement would be the first since 1995, when China adopted the current March schedule for the legislative session. It would mean delaying approval of the national budget, fueling concerns over the consistency of fiscal policies needed to bolster growth.
There is little sign that a delayed NPC meeting would significantly disrupt China's fiscal policy implementation, although it would leave question marks over the closely watched annual growth target and budget deficit ratio. Economists have widely forecast that this year's NPC meeting will approve a higher budget deficit to spur growth.
It is unclear how long the annual session may be delayed. Analysts said the schedule should not be postponed for long, as doing so might upset budget arrangements and fiscal policy implementation.
China's Budget Law stipulates that central and local budget drafts must be reviewed by the annual NPC meeting before government departments can start spending, although lower level governments' budgets are subject to approval only by local legislatures.
As of February, most local governments had completed this year's local legislative meetings and reviews of local budgets, except the southwestern provinces of Yunnan and Sichuan, as well as several county-level cities.
The central budget plan subject to NPC approval will decide how much money the central government transfers to local authorities and the pace of local government bond issuance.
A delayed budget review may not affect fiscal policy much, some experts say. That is because, in practice, the central government often informs local authorities beforehand how much they can expect to receive in the coming year so that local governments can work out their own budget plans.
Part of the funding will also be sent to local governments before the new year starts, local fiscal department officials told Caixin. This year, about 70% of central government funding has been allocated to local authorities and can be used once local legislators approve, they said.
Data released by the Ministry of Finance showed that the central government has allocated 2.44 trillion yuan ($349 billion) in general funding to local governments for 2020. In addition, several hundred billion yuan in special funding has also been sent to local authorities.
A delayed NPC meeting may hinder some projects that require special approval for central government funding, a local fiscal official said.
Since the Covid-19 outbreak, the Finance Ministry has allocated more than 20 billion yuan in special funds to support local governments' fight against the deadly virus.
The delayed budget review will not affect local governments' bond sales very much, as the State Council, the cabinet, started allocating a major part of the bond quotas as early as November, under authority granted to it by the NPC.
Annual debt quotas were originally issued after approval by the annual NPC meeting in March, but the legislature's standing committee passed a bill in December 2018 allowing the Ministry of Finance to assign as much as 60% of the quotas early to push more spending into the first quarter of the year and help local governments better plan their budgets.
So far, the cabinet has assigned 1.848 trillion yuan of bond quotas to local governments to bolster local economies. These governments have maintained a steady pace of bond sales so far this year despite the virus outbreak, Finance Ministry data shows.