(Yicai Global) July 25 -- The Chinese Communist Party’s Political Bureau has held a meeting to identify the country’s economic work direction for the second half of the year.

The focus of China’s fiscal policies in the six months through Dec. 31 should be on implementing tax and fee reductions, resolutely cracking down on arbitrary fees and fines, and solving the problem of government arrears to companies, the Politburo said during yesterday’s meeting.

As a result, local governments should quicken the pace of issuing and using special bonds and draw up and implement plans to defuse local debt risks, it said.

In recent years, the two main tools of China’s proactive fiscal policy have been tax and fee cuts to ease the burden on businesses and large-scale special local government bond issuance to expand the government’s effective investment and offset downward economic pressures.

Local governments can sell as much as CNY3.8 trillion (USD528.9 billion) of special bonds this year, up CNY150 billion (USD20.9 billion) from last year.

In the first half, they issued CNY2.17 trillion worth, financing nearly 20,000 projects in urban construction, industrial park infrastructure, government-subsidized rental housing, and others, Li Dawei, deputy director of the finance ministry’s budget department, said recently.

Local governments are expected to use up their CNY3.8 trillion special bonds quota in the first three quarters of 2023 to drive investment to steady the economy as soon as possible, fiscal experts told Yicai Global.

The quota for policy and developmental financial instruments will likely increase further in the fourth quarter to stabilize the sources of infrastructure investment funds, said Wang Qing, chief macro analyst at Golden Credit Service.

China’s tax policies and value-added tax credit refunds are expected to save businesses CNY1.8 trillion this year. In the first four months, tax and fee cuts, tax refunds, and deferred tax and fee payments totaled CNY468.9 billion, data from the State Taxation Administration showed. Private firms and the self-employed benefited the most, making up over 70 percent of the total.

Consumption needs to play its fundamental role in driving economic growth, the Politburo emphasized at its meeting. China should boost the consumption of vehicles, electronic products, household supplies, and other kinds of mass-consumer goods and promote the consumption of sports, entertainment, and cultural tourism, the Politburo noted.

Fiscal policy is expected to further efforts to spur consumption, as well as expand consumption scenarios, optimize the consumption environment, and improve consumption conditions, said Wang. Fiscal departments at all levels should therefore issue consumption vouchers and subsidies, cut taxes and fees on three types of mass consumption, and provide support by increasing transfer payments.

Editors: Liao Shumin, Futura Costaglione