China’s fiscal policy in 2021 not as aggressive as it appears

March 24, 2021

BEIJING - China's deficit budget of 3.2% of the GDP announced by its State Council under-reports the actual fiscal deficit of 8.0% according to ANZ Bank estimates. The bank questions whether the deficit budget can be translated into economic activities effectively.

Taking the issuance of special local government bonds as an example, ANZ says the multiplier effect on driving infrastructure investment went down materially to 4.0 in 2020 from 30 in 2016, a trend which is likely to continue in 2021.  

As the prospect of declining fiscal policy efficiency, mounting repayment pressure and the Government's intention to deleverage, we see the default risks of local Government Financing Vehicles (LGFVs) rising in 2021. (ATI).