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China lowered its budget deficit ratio to 3.2 percent for 2021, a relatively moderate cut from around 3.6 percent last year, despite the country's effective controlling of COVID-19 and the gradual recovery of the economy, according to the government work report released on Friday. No special COVID-19 bonds will be issued. 

The total deficit budget in 2021 is set at 3.57 trillion yuan ($551.28 billion), compared to 3.76 trillion yuan in 2020, according to the report. 

The cut in deficit budget, which keeps the deficit ratio above 3 percent, is "very moderate" compared to the economic recovery, but still remains within market expectations, Lian Ping, head of Zhixin Investment Research Institute, told the Global Times on Friday. 

China's economy is fast recovering to its pre-COVID-19 level. In 2020, China reported an economic expansion of 2.3 percent, the only major economy in the world with positive growth that year. 

"The cut shows a proactive, and more importantly, a stable fiscal policy to support the economy after COVID-19, with special support for local governments," Lian said. 

Bonds issued from local governments will be only slightly lower than last year. In 2021, a total of 3.65 trillion yuan is permitted to be issued in local government special-purpose bonds, compared to last year's 3.75 trillion yuan. 

"The change in local bonds is significantly smaller than expected," Lian said, "it shows the government's stable and restrained withdrawal of fiscal support, and it also means local governments will have more authority to begin large projects such as infrastructure building plans."

The fiscal support for local governments will play an important role in stimulating consumption and attracting investment in 2021, Lian said. 

According to Finance Minister Liu Kun on Friday, more budgetary funds will be directly allocated to local governments. In 2021, around 2.8 trillion yuan will be allocated to prefecture and county level governments, significantly more than last year, according to the report.

The moderate budget cut will also reserve policy room for future risks, Liu said.

The central government will also continue the large-scale tax reduction. The threshold of value added tax (VAT) for small scale taxpayers will be further raised to 150,000 yuan of monthly sales from 100,000 yuan.

On the basis of preferential policies already in force last year, the central government will halve the income tax of micro and small enterprises and self-employed individuals with an annual taxable income below one million yuan, according to the report.

In 2020, a total of 2.6 trillion yuan was eliminated from public tax, including 1.7 trillion yuan in social insurance, according to the government work report.