Liu Kun: Entrusted at the crucial moment

Liu Kun has only been China’s minister of finance since March 2018 but already he seems more active than his predecessor Xiao Jie. But then he’s had to be, given how the US trade dispute has dragged on business, consumer and investor confidence, with Chinese shares dropping and GDP growth decelerating to its slowest pace in almost 30 years.

Having cut value-added tax rates in May, the Ministry of Finance raised the minimum threshold for personal income tax in October and announced new individual income-tax deductions for certain categories of goods and services such as children’s education, housing loan interest, rent and elderly care.

But, say some economists, perhaps a more proactive fiscal policy could have come a bit earlier.

Another challenge that faces Liu is how to contain local government debt risks while boosting local spending. He has limited room to manoeuvre due to declining land sales and high existing debt levels. “We will be going through a tough time,” Liu said in January.

He developed a reputation for being adventurous when he led the department of finance in Guangdong province from 2002 to 2010. But when it comes to the national budget, Liu has so far tended to be more cautious.

In 2018, expenditure for general public services increased by 8.7%, faster than the 7.7% growth recorded in 2017. But in an interview in October, he insisted that the fiscal deficit in 2018 would not go beyond the pre-set 2.6% of GDP.

Despite the negative impact of the US-China trade war, he proclaimed himself optimistic about being able to address the country’s economic challenges within the confines of the current budget.

In its latest report in early March, the Chinese government announced that the fiscal deficit plan for 2019 is expected to be 2.8% of GDP – an answer to the widespread discussion in China of increasing the budget deficit this year.

And Liu kept his promise of allowing higher local government debt in 2019. This figure will increase by almost 60% to Rmb2.15 trillion ($320.5 billion). Beijing intends to carry out further tax reductions, to boost infrastructure construction both from government and companies’ side.

China’s GDP growth expectation has been cut this year by 50bp to a minimum of 6%, which reflects large uncertainties for most export-oriented enterprises.

Still, it is in line with most analysts’ estimates and removes pressure on all government departments. After all, China always puts “stability” as the first priority of economic growth.

The new government report shows that China is in favour of more fiscal stimulus and slower deleveraging in the economy. There is a total of Rmb2 trillion in tax cut this year which is set to be bullish for the markets. Whether his policies will eliminate concern about deflation, only time will tell.

“It is a difficult year to balance the budget,” Liu admitted himself during the National People’s Congress in March. “But we will be precise on what to spend.”

He ranks the seventh in this year’s Asian finance minister, two notches lower than his predecessor Xiao Jie last year.

Liu Kun ranks above Korea’s Hong Nam-Ki, Malaysia’s Lim Guan Eng, Thailand’s Apisak Tantivorawong, Taiwan’s Su Jain-rong, and Japan’s Taro Aso.