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China settles for higher deficit as growth slows down

Last Updated: Tuesday, March 5, 2013 - 15:54

Beijing: Settling for a moderate growth target of 7.5 percent for the second successive year due to global economic slowdown, the Chinese government has projected a fiscal deficit USD 191 billion for this year, USD 64.5 billion more than last year.

Gross domestic product (GDP) grew by around 7.8 percent last year amounting to 51.9322 trillion yuan, 0.3 percentage points higher than the targeted figure, the work report of the Chinese government submitted to the National People's Congress (NPC) today said.

Last year also the government had set a moderate target of 7.5 percent despite the previous year's 9.3 percent GDP in view steady fall in exports, the main stay of China's economic growth due to global economic slowdown.

The key targets for this year included 7.5 per cent GDP, 3.5 percent inflation and creation more than nine million new urban jobs to keep urban unemployment under 4.6 percent, the report said.

The deficit for 2013 was set at 1.2 trillion yuan (USD 191 billion) -- 400 billion yuan more than the budgeted figure last year, according to the work report delivered to the national legislature today.

The deficit consists of a central government deficit of 850 billion yuan and 350 billion yuan in bonds to be issued on behalf of local governments, the report said.

"It is necessary to appropriately increase the deficit and government debt, as the time lag of past structural tax cuts will make it hard for government revenues to grow rapidly this year, while fixed government expenditures will increase," the report said.

China has a relatively low debt-to-GDP ratio and the increase in the deficit this year will bring the deficit-to-GDP ratio to a safe level of about 2 percent, the report said.

The increased spending will be used to ensure and improve the people's well-being and maintain support for economic growth and structural adjustments, it said.

Although some countries are struggling to cut deficits in 2013, the Chinese government is expanding its deficit, which shows its desire to release bonuses that can drive economic growth and improve the quality of its development at the same time, experts have said.

The increased deficit will ensure that the government has enough money to increase its investment in education, health care and social security, said Gao Peiyong, head of the National Academy of Economic Strategy under the Chinese Academy of Social Sciences.

In the long-term, the deficit increase will be conducive to expanding domestic demand and maintaining economic growth, Gao told state-run Xinhua news agency.

The deficit increase will also provide more room for tax cuts, he said.

Value-added tax reform, replacing the turnover tax with a value-added duty in the transportation sector and some service sectors have reduced taxes by over 40 billion yuan (USD 6.45 billion) for more than one million taxpayers in 12 pilot regions as of February 1, according to the Ministry of Finance.

Although an increased deficit would normally increase financial risks, China's financial risks are still controllable at the moment, Gao said.

A deficit-to-GDP ratio of less than three per cent and a government-bond-outstanding-balance-to-GDP ratio of less than 60 percent are considered safe and controllable according to international standards, Gao said.

The ceiling for the outstanding balance on government bonds in the central budget in 2013 stands at 9.12 trillion yuan, which accounts for less than 20 percent of the GDP, according to a report on China's central and local budgets provided by the Finance Ministry and submitted to the NPC for deliberations.


First Published: Tuesday, March 5, 2013 - 15:52
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