(Yicai Global) May 30 -- China will allocate in advance next year’s budgetary funds worth CNY400 billion (USD59.7 billion) to ease the burden on local authorities.

The move aims to help make up for lower local government revenues as a result of tax cuts and fee reductions, the finance ministry said in a document issued yesterday.

It is the third time this year that the central government has granted fund transfers to local authorities amid an upsurge in Covid-19 in the country. The first two -- totaling CNY800 billion -- went to help local governments implement tax and fee cuts and safeguard livelihoods.

The early allocation of these funds can ease the burden on local authorities, Feng Qiaobin, deputy secretary-general of the Society of Public Finance of China, told Yicai Global. The move is also evidence of the fiscal expenditure pressure on local governments, she added.

The pressure on China’s economy has increased because of Covid-19 and the Russia-Ukraine conflict, according to Deng Shulian, a professor at Shanghai University of Finance and Economics. So funds in advance are necessary to keep local authorities running and provide a safety net for local businesses as much as possible as well as stabilize the jobs market and economy, Deng said.

China’s eastern provinces, the most economically developed, have benefited the most from the three transfer payments. Yicai Global found from finance ministry data.

Of the total CNY1.2 trillion (USD180.5 billion) in funds, Jiangsu, the province with the highest per-capita gross domestic product, is scheduled to receive over CNY200 billion, followed by Guangdong, which has the highest total GDP, with CNY94.2 billion (USD14.2 billion). Shandong and Zhejiang both got CNY70 billion.

“The most-developed eastern areas have greater industrial outputs, so their scale of tax refunds and cuts and fee reductions are relatively larger, and are under much more pressure than less developed provinces, as revenue from local finances declines,” Feng said.

“These provinces have been impacted more by the Covid-19 outbreaks, with higher spending on implementing epidemic prevention and control measures, so they should receive greater support from the central government,” she said.

Most of the CNY1.2 trillion will be used to subsidize local governments when implementing value-added tax credit refunds, Ma Guangrong, deputy head of the Institute of Public Finance and Taxation at Renmin University, told Yicai Global. As the eastern provinces are more developed, their share of the VAT tax base and of corresponding refunds is larger, so it is natural that the central government allots the bulk to them, Ma said.

On the other hand, since the overall scale of the central government’s fund transfers to local authorities hit an historic high this year, Ma pointed out, that should be enough to compensate them for lost revenues due to the various tax and fee cuts aimed at stimulating local economies and fighting Covid-19.

Editors: Tang Shihua, Futura Costaglione