What experiences can be referenced for fiscal budget adjustments?

Fiscal policy has become the focus of the market at present, and mid-year fiscal budget adjustments must be approved by the Standing Committee of the National People's Congress (NPC). With the NPC Standing Committee meeting approaching in November, what past experiences can be referenced regarding the review of budget adjustments? This article summarizes them for reference. Why is the NPC Standing Committee being closely monitored for mid-year budget adjustments? Incremental fiscal policies involving budget adjustments must be approved by the Standing Committee. According to the Budget Law, if there is a need to adjust the fiscal budget, it must be reviewed and approved by the corresponding level of the NPC Standing Committee. For example, adjustments to the central budget must be submitted to the National People's Congress or its Standing Committee for review and approval, while adjustments to the budgets of local governments at or above the county level must be submitted to the local NPC or its Standing Committee for review and approval. Fiscal budget adjustments can be categorized into regular and irregular types, with regular adjustments occurring more frequently at the local level, such as provincial, directly governed municipalities, and separately listed cities adjusting their local debt issuance amounts and transfer payment scales. Under the background of local debt limits being issued in batches, local governments conduct multiple routine budget adjustments each year; these mainly correspond to adjustments in total revenue and expenditure after the issuance of new debt limits and transfer payments. In contrast to routine local budget adjustments, the frequency of mid-year fiscal budget adjustments at the national level is relatively low, mostly occurring in the context of external shocks or pressure to stabilize growth. Given the current situation where incremental fiscal policies are being intensified at the national level, any related budget adjustments must be approved by the Standing Committee of the National People's Congress. Therefore, the upcoming NPC Standing Committee meeting may serve as an important window for observing incremental fiscal policies. How has the NPC Standing Committee reviewed budget adjustments in the past? More adjustments to central debt limits, fewer adjustments to revenue and expenditure structures. Looking back at past mid-year budget adjustments by the NPC Standing Committee, there have been many adjustments to central debt limits. The NPC Standing Committee's review of fiscal budget adjustments is often related to adjustments in central debt limits, such as those in 1998-2000, 2007, and the 2023 budget adjustments; adjustments to local debt limits and fiscal revenue and expenditure structures have been less frequent, occurring only in 2008, 2015, and 2016. Before the NPC Standing Committee meeting, the Chairman's meeting usually convenes to decide the meeting time and disclose the proposed agenda. The Chairman's meeting is responsible for determining the schedule of each Standing Committee meeting and drafting the agenda. However, the final agenda of the NPC Standing Committee meeting may differ from what was disclosed in the Chairman's meeting. For example, in October 2023, despite the Chairman's meeting not disclosing the agenda for reviewing central budget adjustments, the Standing Committee meeting approved the issuance of additional national bonds on the last day. Currently, although the agenda draft disclosed by the NPC Chairman's meeting does not include budget adjustments, the possibility of adjusting the fiscal budget cannot be ruled out. Although the agenda for the twelfth meeting of the Standing Committee suggested by the NPC Chairman's meeting does not include budget adjustment matters, based on the experience of budget adjustments in October 2023, it is still possible that the NPC Standing Committee meeting in November will conduct budget adjustments. Monitoring whether budget adjustments will occur within the year may involve tracking the daily content of the NPC Standing Committee meeting in November and the matters approved on the last day of the meeting What will the Standing Committee of the National People's Congress focus on this time? Supplementing fiscal capacity within the year, debt reduction policies, and capital replenishment for commercial banks, etc. If this session of the Standing Committee of the National People's Congress involves budget adjustments, according to the guidelines from the Ministry of Finance's press conference, it may focus on supplementing fiscal funds for the year, a new round of local debt reduction policies, capital replenishment for commercial banks, and the utilization of central debt space. At the same time, the proposal made by attendees at the September Standing Committee meeting to "arrange for the issuance of a portion of next year's national bonds and local government bonds in advance" also involves budget adjustments and must be approved by the Standing Committee, which may be closely monitored in this session. The general fiscal revenue gap for the year may continue to be supplemented through revitalizing existing assets and utilizing the new central debt balance limit without involving budget adjustments. On October 12, the Ministry of Finance announced that "the central government has allocated 400 billion yuan from the local government debt balance limit to supplement the comprehensive fiscal capacity of local governments." If this debt balance limit is used for local government general bonds, it may help address the general fiscal revenue gap. The remaining fiscal funding gap for the year may also consider utilizing the national bond balance limit. The new round of debt reduction policies and capital replenishment for commercial banks may be medium- to long-term policies, which could be reviewed and advanced in batches at the Standing Committee and the following year's national "Two Sessions." The timing of this round of debt reduction policies may refer to the debt reduction experience from 2015 to 2018, and it may not be urgent to push forward concentrated efforts by the end of the year. Meanwhile, the capital replenishment for commercial banks may also be advanced in batches. Future developments regarding a package of incremental policies represented by the fiscal sector can be closely monitored during the Central Economic Work Conference in December and the arrangements for the following year's national "Two Sessions." Report Body Fiscal policy has become the current focus of the market, and mid-year fiscal budget adjustments must be approved by the Standing Committee of the National People's Congress. With the upcoming November Standing Committee meeting, what past experiences can be referenced for budget adjustments? This article summarizes them for reference. Question 1: Why is there a close watch on the Standing Committee for mid-year budget adjustments? According to the "Budget Law," once the budget is approved, it cannot be adjusted without following the legal procedures; if adjustments to the fiscal budget are needed, they must be reviewed and approved by the corresponding level of the Standing Committee of the People's Congress. Specifically, the budget adjustment plan needs to be submitted to the Standing Committee of the People's Congress at the corresponding level for review and approval. For example, the adjustment plan for the central budget must be submitted to the National People's Congress or its Standing Committee for review and approval, while the adjustment plans for budgets at the county level and above must be submitted to the respective local People's Congress or its Standing Committee for review and approval. Fiscal budget adjustments can be categorized into regular and irregular types. Regular adjustments mostly occur at the local level, where after the transfer payments and debt limits are issued, provincial, municipal, and separately listed city governments adjust their local bond issuance amounts and allocate limits between levels. Under the background of phased issuance of local debt limits, local governments conduct multiple routine budget adjustments each year, mainly corresponding to the adjustment of total revenue and expenditure after the issuance of new debt limits and transfer payments; there are also irregular adjustments due to unexpected economic conditions that affect fiscal revenue and expenditure or the use of past surplus debt limits Compared to local routine mid-year budget adjustments, the frequency of mid-year fiscal budget adjustments at the national level is relatively low, mostly occurring in the context of external shocks and pressure to stabilize growth. Looking back at past mid-year budget adjustments by the Standing Committee of the National People's Congress (NPC), there have been only 8 instances in history, of which 5 involved adjustments to the central debt limit, 1 involved adjustments to local debt limits, and 2 involved adjustments to the fiscal revenue and expenditure structure. Considering the current situation where incremental fiscal policies are being intensified at the national level, any budget adjustments would require approval from the NPC Standing Committee. Therefore, the upcoming NPC Standing Committee meeting may become an important window for observing incremental fiscal policies. In September, fiscal expenditure has significantly accelerated, and it is necessary to continuously track whether fiscal revenue can sustain improvement and the potential incremental policies that may supplement financial resources. The significant acceleration of fiscal expenditure in September is mainly supported by non-tax revenue, while land transfer income has slowed down and the issuance and use of new special bonds have accelerated. Whether the subsequent revenue support can be sustained still needs to be monitored. At the same time, whether financial resource supplementation tools will be introduced within the year also requires close tracking. There is considerable policy space for new government bonds, which must be approved by the NPC Standing Committee. Therefore, the upcoming NPC Standing Committee meeting from November 4 to 8 is worth close attention. Question Two: How has the NPC Standing Committee reviewed budget adjustments in the past? Looking back at past mid-year budget adjustments by the NPC Standing Committee, adjustments related to the central debt limit are more frequent, while adjustments to local debt limits and the fiscal revenue and expenditure structure are less common. The NPC Standing Committee's review of fiscal budget adjustments is often related to adjustments of the central debt limit. For example, from 1998 to 2000, the NPC Standing Committee adjusted the budget and issued government bonds for three consecutive years to support infrastructure and technological advancement and industrial upgrading; in 2007, the NPC Standing Committee approved the issuance of 1.55 trillion yuan in special government bonds for foreign exchange purchases, serving as capital for the National Foreign Exchange Investment Company; in 2023, the NPC Standing Committee approved the issuance of an additional 1 trillion yuan in government bonds to support post-disaster recovery and reconstruction and to address shortcomings in disaster prevention, reduction, and relief. In contrast, adjustments to local debt limits and the fiscal revenue and expenditure structure have occurred less frequently, only during post-disaster reconstruction in 2008, local debt restructuring in 2015, and during the value-added tax reform period in 2016. Before the Standing Committee meeting, the Chairman's meeting usually convenes to decide on the meeting time and disclose the proposed agenda. The Chairman's meeting is responsible for determining the schedule for each meeting of the Standing Committee and drafting the agenda. Therefore, it typically convenes before the Standing Committee meeting to disclose the meeting time and review items. However, the final agenda for the Standing Committee meeting may differ from what was disclosed at the Chairman's meeting For example, in October 2023, under the circumstance that the Chairman's meeting did not disclose the agenda for reviewing the central budget adjustment, the Standing Committee meeting also reviewed and approved the draft resolution for the State Council's additional issuance of national bonds and the 2023 central budget adjustment plan on the last day. Currently, the National People's Congress (NPC) Chairman's meeting has disclosed the date for the next Standing Committee meeting. Although the disclosed agenda draft does not include budget adjustments, based on the experience from October 2023, the possibility of adjusting the fiscal budget cannot be ruled out. Although the agenda for the twelfth meeting of the Standing Committee suggested on October 25 did not include budget adjustment matters, the experience from the October 2023 budget adjustment indicates that even when the Chairman's meeting does not disclose the agenda related to budget adjustments, the Standing Committee meeting still reviewed and approved the draft resolution for the central budget adjustment plan on the last day. Therefore, it is still possible for the November NPC Standing Committee meeting to conduct budget adjustments. Attention should be paid to whether budget adjustments will be made within the year, which can be tracked by monitoring the daily content of the November NPC Standing Committee meeting and the matters reviewed and approved on the last day of the meeting. Three Questions: What will the NPC Standing Committee focus on this time? If this NPC Standing Committee involves budget adjustments, according to the guidance from the Ministry of Finance's press conference, it may focus on supplementing fiscal funds for the year, a new round of localized debt policies, commercial banks' capital replenishment, and the utilization of central debt space. On October 12, the Ministry of Finance's press conference proposed four aspects of incremental measures that will soon be implemented: first, to strengthen support for local governments to resolve debt risks, significantly increasing the debt quota; second, to issue special national bonds to support state-owned large commercial banks in replenishing core tier one capital; third, to support the stabilization of the real estate market; fourth, to increase support for key groups. Localized debt, support for state-owned large commercial banks to replenish core tier one capital, and the statement that "the central government still has considerable borrowing space and deficit expansion space" are all incremental policies that must be approved by the National People's Congress or the NPC Standing Committee before they can be implemented. (See "Highlights 'Absolutely Not Just' Four Aspects — Interpretation of the Ministry of Finance Press Conference") At the same time, proposals made by attendees at the September NPC Standing Committee meeting, such as "arranging to issue a portion of next year's national bonds and local government bonds in advance," also require NPC Standing Committee approval. Recently, the National People's Congress website published the "Opinions and Suggestions on the Budget Execution Report for This Year," which showed that some attendees at the September NPC Standing Committee meeting proposed "accelerating the issuance and use of ultra-long special national bonds and local special bonds, arranging to issue a portion of next year's national bonds and local government bonds in advance, and appropriately relaxing the scope of bond use," as well as "increasing fiscal support to ensure that the 'three guarantees' at the grassroots level do not encounter problems... and promoting the tilt of public resources in education, healthcare, and social culture towards the grassroots." Arranging to issue part of next year's government debt quota in advance involves budget adjustments and must be approved by the NPC Standing Committee, which may be a key focus In contrast, the general fiscal revenue gap this year may continue to be supplemented through revitalizing existing assets and using the central debt balance limit without involving budget adjustments. On October 12, the Ministry of Finance announced that "the central government has allocated 400 billion yuan from the local government debt balance limit to supplement the comprehensive financial capacity of local governments." If this debt balance limit is utilized from local governments' general bonds, it may help to alleviate the general fiscal revenue gap. The funding gap in fiscal surplus can also consider using the national debt balance limit. Regarding the national debt balance limit, by the end of 2023, the national debt balance (30,032.55 billion yuan) is lower than the national debt limit approved by the National People's Congress (30,860.835 billion yuan), with a difference of 828.3 billion yuan that the Ministry of Finance can directly use to cover the revenue-expenditure gap. (See "Government Debt Supply, How Much is Left This Year? — Macro Special Report") The new round of debt conversion policies, commercial banks' capital replenishment, and the utilization of central borrowing space may be medium to long-term policies, which could be reviewed and promoted in batches at the Standing Committee of the National People's Congress and the next year's "Two Sessions." Considering that this round of debt conversion policy "is the most substantial measure to support debt conversion in recent years," its time dimension may refer to the debt conversion experience from 2015 to 2018, and it may not be urgent to push forward at the end of the year. Meanwhile, the experience of injecting special treasury bonds into commercial banks in 1998 may serve as an important reference for this round of capital injection, but the total asset scale of commercial banks has changed significantly since then, and capital replenishment may proceed in batches. Therefore, in addition to the Standing Committee of the National People's Congress meetings, subsequent comprehensive incremental policy situations represented by finance should also focus on the Central Economic Work Conference in December and the arrangements and deployments of the next year's "Two Sessions." Author: Zhao Wei (S1130521120002), Jia Dongxu, etc., Source: Shenwan Hongyuan Macro, Original Title: "Fiscal Budget Adjustment, What Experience Can Be Referenced?"