Chongqing shows merits of prompt government aid

Six months after the COVID-19 outbreak, everything at Haier's appliance manufacturing plant in Chongqing is back to normal, thanks to imaginative and prompt financial support extended by the municipal government.

The largest washing machine maker in China, Haier boasts a production base in Chongqing that is one of the largest in Southwest China. It received 12.57 million yuan ($1.81 million) from the local government to subsidize workers who had to suspend production during the pandemic and lost their wages.

The financial aid is part of the 40 billion yuan fund that was directly transferred by the central government to the Chongqing municipality to support businesses and strengthen infrastructure construction, in order to offset the COVID-19 impact.

Su Hongwei, an official of Chongqing finance bureau, received a phone call on June 23 from the Ministry of Finance, asking her to make a budget to disburse the fund from a special transfer payment system and the special treasuries for COVID-19 control.

The fund is directly allocated to the prefecture-and county-level governments from the central government in only eight days. It is to be received by enterprises and households within a month. The local governments need to follow the management rules of the national treasury system, Su said.

Feng Yi, head of the Chongqing financial bureau, said that the management of the central government's direct fund is strict, with a very limited time schedule and strict supervision.

He said: "We have to ensure that any link with the special transfer payment system is operating smoothly.

"Meanwhile, we need to tighten our belts and save money for the necessary spending. The special transfer payment and the COVID-19 bonds are the one-off measures for this year, but more challenges could be seen in the coming years, which requires us to enhance the fiscal budget management and optimize the expenditure structure.

"The more difficulties we have in balancing the fiscal revenue and expenditure, the greater the impetus for fiscal reform will be."

Analysts said the next stage of China's fiscal reforms is to tackle the significant revenue and expenditure misalignments between the central and local governments.

Supported by the special transfer payment system, the fund was disbursed to Haier Group by the end of July, and the output of Haier increased by 109.35 percent in the second quarter compared with the first three months of this year, which contributed 159 million yuan in tax to the government, said Zhang Li, head of the payment center of the national treasury of the finance bureau in Jiangbei district, Chongqing.

Because of the lockdown during the epidemic, Haier's supply chains and production have been severely affected. The government of the Jiangbei district initiated supportive measures, including strengthening the coordinated procurement of medical materials, promoting the resumption of production along its supply chains comprising about 200 suppliers, and service and logistics providers, said Zhang.

This year, the central government issued 1 trillion yuan in government bonds for COVID-19 control and increased the fiscal deficit by 1 trillion yuan. These extraordinary measures were meant as coping mechanisms during the pandemic.

Authorities were required to transfer the funds in full to local governments through a special transfer payment mechanism that ensures the funds go straight to prefecture-and county-level governments and directly benefit businesses and households.

"From my understanding, the 'special' transfer means all funds need to be transferred rapidly, from the high-level government to the grassroots, without any intermediate link. And a special supervision system is needed to ensure the efficiency of the fund usage, avoiding retention of funds by the mid-level government," said Su.

Wang Yinchuan, head of the budget department of Chongqing finance bureau, said: "When we were selecting projects, we always considered the borrowers' ability to repay as soon as in five years."

The funds raised through the special COVID-19 bonds need to be injected into infrastructure construction projects that can earn some profits, or into projects for containing the virus, so as to increase inputs into the research and development of vaccines, medicines, and rapid-testing technologies, set up more mobile laboratories, ensure emergency supplies, and strengthen public health and epidemic prevention at the primary level, Wang said.

"It is a rush time since we received the budget from the central government till the selection of projects, so some of the funds will be re-allocated to make better use of them."

A package of fiscal stimulus from the Chinese government to contain the COVID-19 impact has promoted economic recovery. In Chongqing, for example, local GDP increased by 0.8 percent year-on-year by the end of the second quarter, reversing the 6.5-percent decline in the first three months.

The local government's general public budget income dropped by 11.2 percent in the first half of this year, according to data from the local finance bureau.