(Reuters) -China will step up fiscal policy support for a strategy to make its economy mainly rely on domestic demand, supply chains and innovation, Finance Minister Liu Kun said.
China has unveiled a “dual circulation” strategy for the next phase of economic development in which it will rely mainly on “domestic circulation” – the internal cycle of production, distribution, and consumption, supported by innovation and upgrades in the economy.
“Fiscal policy has the advantage of optimising resource allocation and promoting structural adjustments,” Liu said in an article republished on the finance ministry’s website dated Friday.
“Government finance is duty bound to support and speed up the cultivation of a complete domestic demand system, and there is much to be done,” Liu said.
The government will take steps to boost domestic consumption, including appropriately expanding public consumption, and increase imports of high-quality goods to help upgrade domestic consumption, Liu said.
Fiscal policy will also support tech innovation, as some key technologies are controlled by foreign countries, and the upgrading of supply chain, Liu said.
China’s research and development (R&D) spending has been the second highest in the world for seven consecutive years but it needed to improve spending structure and efficiency, Liu said.
The government would support key science and technology projects, encourage firms to boost R&D spending, and implement tax incentives for firms to invest in basic research, Liu said.
China has boasted the most complete manufacturing supply chains in the world but tension with the United States has exposed its vulnerability as it relies heavily on U.S. high-tech products, such as semiconductors.
Liu also said China would strengthen fiscal and tax support for sectors involved with national economic security and ensure the safety of sectors such as grain, energy, technology and health.
China would establish a mechanism for local government debt financing to strengthen the prevention of hidden debt risk, Liu added.
(Reporting by Colin Qian and Kevin Yao; Writing by Se Young LeeEditing by Grant McCool, Robert Birsel)