China ups spending, deficit at six-decade high

By Xinhua,

Beijing : China Thursday announced a fiscal deficit budget of 950 billion yuan ($139 billion) for 2009, the highest in six decades, as the country boosts spending to cushion the impact of the global financial crisis.

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The total deficit accounts for less than 3 percent of China’s gross domestic product (GDP), said Prime Minister Wen Jiabao at the opening of parliament’s annual session.

Despite the deficit surge, China’s constant deficit drops in previous years provide room to issue more bonds this year, said Wen in his government work report to the second session of the 11th National People’s Congress (NPC).

“The ratio of the cumulative balance of outstanding government bonds to GDP, which is around 20 percent, is within the acceptable range of what our overall national strength can bear and is therefore safe,” he told the country’s legislators.

China set this year’s central government deficit at 750 billion yuan ($10 billion), 570 billion yuan ($83 billion) more than last year, he said.

In addition, the State Council, or cabinet, will allow local governments to issue 200 billion yuan ($29 billion) worth of government bonds through the ministry of finance (MOF), which will go into provincial budgets, said Wen.

The total 950 billion-yuan deficit budget was nearly three times over the last record of 319.8 billion yuan ($47 billion) in 2003.

The surging deficit is part of China’s proactive fiscal policy, which was adopted in November in response to a slowing economy and diminishing jobs under the pressure of the world financial turmoil.

“We will significantly increase government spending,” said Wen, adding: “This is the most active, direct and efficient way we can expand domestic demand.”

Wen also attributed the large deficit to decline in government revenues as a result of slower economic growth and reduction of tax burdens on enterprises and individuals.

China’s GDP growth slowed to a seven-year low of 9 percent year-on-year in 2008 as the global financial crisis took a toll on the world’s fastest-expanding economy.

Wen added that while continuing to increase investment in key areas, the government will “strictly control regular expenditures and do everything we can to reduce administrative costs”.