Focus on market entities, consumption, sci-tech will pay off

The Central Economic Work Conference held in December noted that China's economy is faced with threefold pressure from demand contraction, supply shocks and weakening expectations. The meeting urged placing stability as a top priority while pursuing growth. It also called for enhancing technological innovation capacity and promoting high-quality development. Central departments and local governments were urged to take responsibility for stabilizing growth, and policies conducive to such growth will be rolled out properly, in advance. The flexibility of fiscal policies in stabilizing 2022 growth was noted.

First, the role of supporting market entities shall be catalyzed for fiscal policies. Protecting market entities is to protect productive factors. The number of market entities in China has exceeded 150 million, providing jobs to roughly 700 million people. Family-owned businesses alone have created jobs for some 300 million people.

These market entities are there to sustain the resilience and confidence of the Chinese economy and are the key foundation for achieving stable growth. Yet at the same time, most of them are small and medium-sized businesses as well as micro businesses. They stand in vulnerable situations in terms of securing financing and coping with shocks brought about by rising commodity costs. As the economy now faces downward pressure, fiscal support often results in significantly bolstering market confidence, energizing market vitality and supporting production.

Figures from the Ministry of Finance show that in 2021, work on tax and fee cuts has been optimized and further implemented. The overall scale of tax and fee cuts in 2021 has reached 1 trillion yuan ($157.1 billion). It was confirmed by the Ministry of Finance that this year, tax and fee cuts will be intensified. Efforts will be made to ensure that tax and fee cut policies will be fully delivered to ease financing pressure for market entities. Support targeting micro-sized and small businesses will be continued. Incentives will be offered to those providing guarantees for financing micro businesses. Local governments will be encouraged to continue their support for small firms through loan subsidies and liquidity support. We expect that in 2022, fiscal spending will be stepped up and be "front-loaded" to handle unexpected circumstances. Fiscal policies shall be better targeted to support market entities, thus ensuring employment stability and economic growth.

Second, the role of keeping investment stable and boosting consumption from fiscal policies shall be better harnessed. Slowing investment growth, particularly in infrastructure investment, is one of the reasons behind an overall slowing growth of the Chinese economy. In 2022, investment shall be scaled up toward infrastructure. Funds released from special government bonds, which have been issued in advance, shall be well-applied to generate real economic activity. By the end of 2021, the Ministry of Finance had allocated in advance special local government bonds of 1.46 trillion yuan, with key focuses on several fronts such as transportation, energy, agriculture and water conservation, environmental protection and other areas. The ministry urged localities to focus on high-quality development and speed up project approval and launches.

Funds released from special local government bonds are mainly used to support key projects with notable social and economic benefits. Therefore, they play a critical role in underpinning growth. Also, efforts should be made to use these special bonds to shore up weak links and benefit people's livelihoods by intensifying support for key areas and remedying weak links.

Third, fiscal support should also be given to enhance the stability of supply chains. Currently, global commodity prices have remained high for an extended period, which brings operational pressure to midstream and downstream enterprises, and this deserves attention from financial departments. In particular, export-oriented small and medium-sized enterprises have a large number of employees involved in wide swathes of industrial and supply chains. It is necessary to increase financial support for such enterprises to protect market players and enhance the resilience of industrial and supply chains.

Fourth, in 2022, it is important to further increase financial investment in basic research. Fiscal and taxation policies should work to encourage the integration of industry and finance, and encourage the transformation of scientific research results into reapplications. Every effort should be made to ensure the organization and implementation of major scientific and technological projects.

Fifth, fiscal support shall also be placed in the area of green finance. Fiscal funds should be used to enhance ecosystem protection and restoration. Efforts should be made through improving the standard of government green purchasing to encourage green production and low carbon transportation from the supply side. Incentives should be provided to green production. Research should be rolled out with corresponding tax breaks related to cutting carbon emissions. Existing tax breaks for environmental protection, water conservation and new energy-as well as clean energy-must be fully implemented on the ground.

In addition, fiscal policies should continue to optimize the structure of income distribution and promote the recovery of consumption. In late 2021, it was decided at the executive meeting of the State Council to extend the implementation of the preferential personal income tax policy till the end of 2023. In 2022, fiscal policies should continue to promote construction of the basic public services system, and improve the level of access and effectiveness of all basic public services. Efforts should also be made to use fiscal funds and policies to support the consolidation and expansion of poverty alleviation achievements, boost rural revitalization while inviting active participation of social funds into economic and social undertakings and advance regional development-all to help revitalize domestic demand.

Last but not least, prevention and control of systemic risk is a prerequisite for high-quality development. For local government debt, especially hidden debt, improving the normalized monitoring mechanism is a fundamental means to prevent systemic risk.

The writer is a professor at the School of Economics at Renmin University of China. The views don't necessarily reflect those of China Daily.