Public Finances

Government Investment and Debt in china according to Prof Geraci

According to the annual budget report of the Finance Department of the central province of Hunan, the central government has estimated that national fiscal revenue will increase 5% this year and local government fiscal revenue will increase 6%. Looking at the fiscal budget and in particularly the forecasted increase in revenues, could offer an indication of the government expectation of future nominal GDP growth rate. So from this figures, 6 % of expected fiscal revenue growth, one could try to get an estimate for next year fiscal GDP growth.
PwC thinks that in 2017, the value of China outbound FDI might be lower than that in 2016. This would be due to the new Chinese government regulations that extended the approval process for cross border M&A in the attempt to limit capital outflows. I think even if indeed there is some closure in the capital account flows, one should also take into account potential increases in demand for inbound investment from other countries. In particular I would advice to pay particular attention to Trump's infrastructure development strategy for the US which maybe require Chinese input.
In recent days, there has been a heated debate as to the actual burden of corporate tax rates in China. Depending on how one reads figures and follows event, one can reach totally opposite conclusions, in some cases, it seems that China corporate tax rates are high, while in other cases they appear to be low. As often in the case of China, the right answer is “it depends”. China often resembles one of those old snow balls that change from summer to winter every time we turn it upside down. Some companies decide to move manufacturing facilities from China to the US on the argument of lower tax rates, while other analysis paint a different picture.
China's National Development and Reform Commission (NDRC) has relaxed financing conditions for PPP (Public Private Partnership) projects. These will now be able to securitize future revenues as a mean of financing. The intention seems to be to open more financing channels to PPP, an initiative which has been promoted by the Chinese Government but that struggles to take off.
China Banking Regulatory Commission recently release its control over loal asset management companies, allowing for debt restructuring and other methods to dispose non-performing assets. This is a new opportunity investing nothing but trillions of returns for AMCs.
In September, the fiscal income increased 4.9%. Both public budget revenue and local budget increased. From Jan to Sep, national tax income has increased 6.6%, where value added tax increased 23.8% and business tax increased 24.7%.
When Michele Geraci was interviewed by CRI, he showed great appreciation for the “Innovation growth model”, which is proposed in G20, at Hangzhou, China. “The introduction of innovation in the agenda of G20 is a very positive thing, and it is the first time that we put it in the foreground of the G20, and also, it is very important that this time the G20 is held in China. It is China that is taking the lead at this meeting, and it is China that needs to change its development model and base it more on innovation.

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