Interpac Business and Migration Solutions Melbourne Australia

(December 21, 2010)

900 billion yuan could be possible if crisis-hit global economies stabilize

BEIJING - China is planning to outline a fiscal deficit of 900 billion yuan ($135 billion) for next year, 150 billion yuan less than this year's target, according to a report in the Beijing-based Century Weekly Magazine on Monday.

The central government's fiscal deficit will decrease to 700 billion, while debt issued by central authorities for local governments will be maintained at 200 billion yuan, the magazine cited an anonymous source close to the Ministry of Finance as saying.

The magazine said that before the plan is passed at the annual national legislative session in March, the government might fine-tune the numbers in accordance with changes in the domestic economic situation and the level of recovery of major world economies.

Liu Yuanchun, associate dean of the Economics School at Renmin University of China, told China Daily that if GDP grows at a rate above 9 percent, the 900 billion yuan deficit will be no larger than 2 percent of GDP.

"Judging by the current situation, the probability of a GDP growth rate below 9 percent is very small, which means the deficit is likely to be less than 2 percent of GDP," he said.

In March, the nation's leaders outlined an "appropriate" deficit of 1.05 trillion yuan for this year, roughly 2.8 percent of GDP, and an increase of about 100 billion yuan from last year.

The total deficit consists of 850 billion yuan in central government deficit, and 200 billion yuan in local government bonds, which will be included in local government budgets.

China's fiscal deficit hit 950 billion yuan in 2009, a six-year high, but was still less than 3 percent of GDP, considered by many economists as a security line.

Despite a shrinking deficit in 2011, the fiscal policy is still undoubtedly a "proactive" one, said Liu.

China formally decided in early December to adopt a proactive fiscal policy and a "prudent" monetary policy for 2011.
 
 
"As long as the government keeps a deficit, and tries to counter downward factors that may cause an economic slide with larger spending, it is still a proactive policy stance," said Liu, adding that China's fiscal revenue will still grow rapidly next year by between 16 and 18 percent.

Analysts said greater-than-expected fiscal revenue this year will also contribute to a smaller deficit in 2011.

Between January and November, China's fiscal revenue increased by 21.1 percent year-on-year to more than 7.67 trillion yuan, exceeding whole-year revenue in 2008 and 2009. Over the same period, fiscal expenditure rose by 27.3 percent to nearly 7.16 trillion yuan, according to the Ministry of Finance.

Liu predicted that the actual deficit for 2010 will be more than 1 percent of GDP.

Although the proactive policy will be maintained, it will still be very different from 2009 and 2010, when the government took an unusually loose fiscal stance to stimulate economic growth after the global financial crisis affected the nation, said Lu Zhengwei, chief economist with the Industrial Bank.

He added that the government's spending focus for next year will be on promoting economic restructuring, instead of guaranteeing the growth rate.

Zhang Ping, chairman of the National Development and Reform Commission, said earlier that government spending next year will focus more on building affordable housing and supporting areas such as irrigation and agricultural facilities, education and healthcare, energy saving and emissions reduction, and environmental protection.

A proactive fiscal policy could offset the effect of shrinking monetary policy and support economic growth of more than 9 percent, said Lu Ting, economist at Bank of America-Merrill Lynch.

(Source:Chinadaily)