China tried to harness as much fiscal support as possible for its cooling economy yesterday by threatening to cut the 2016 budgets of local governments that do not spend most of their allocated cash this year.

The cabinet, or the State Council, said departments and regional governments alike would see their budgets shrink “appropriately” next year if they left a significant amount of cash unused.

Governments that did not finish spending their budgets in the past two years would also see the cash being redirected to pay for the construction of ‘key’ projects, the cabinet said, without giving details.

This is the second time in two years that China has ordered its governments to keep spending to safeguard growth in the world’s second-largest economy as it stutters.

The Finance Ministry had threatened in May last year to call back the 2014 budget money of local governments if they were not fully allocated by June 2014.

China is targeting a budget deficit worth 2.3 per cent of its gross domestic product (GDP) this year, up from 2.1 per cent in 2014, though the finance minister and economists at the central bank have said separately the actual deficit will likely be larger.

Finance Minister Lou Jiwei said in March the deficit for 2015 would be closer to 2.7 per cent of GDP, after accounting for cash allocated from previous unspent budgets.

The cabinet also said after its weekly meeting that a pilot scheme aimed at providing more banking services to low-income groups would be expanded across the country.

Entry into the consumer credit market would be liberalised, it said. Private investors, local and foreign banks and e-commerce companies that meet the criteria will be encouraged to set up consumer credit firms.

These companies will be allowed to extend micro-loans to borrowers without need for guarantees or collateral, it said.