Statistics

Chinese fiscal deficit likely to decrease in 2011

By Wang Xiaotian (China Daily)
Updated: 2010-12-11 10:26

BEIJING - China's fiscal deficit might decrease below 2 percent of GDP in 2011, but government measures will still be proactive enough to shore up stable economic growth with a focus on growth pattern transition, said analysts.

The Political Bureau of the Communist Party of China Central Committee announced on Dec 3 that the country will implement a proactive fiscal policy and a prudent monetary policy next year, and increase the flexibility and effectiveness of macroeconomic adjustments.

Lu Zhengwei, chief economist with the Industrial Bank, said the decision indicated that the 2011 fiscal outlay and deficit will not shrink notably compared with this year. However, the focus will be firmly on the promotion of economic restructuring, instead of guaranteeing the growth rate.

"That means ordinary investment projects would be strictly controlled next year, and local governments will not continue to spend a lot on investment enthusiastically regardless of efficiency," said Lu.

He predicted that the 2011 fiscal policy will focus on building affordable housing, encouraging consumption by cutting taxes and raising the income of low-income groups. Policy will also be directed towards supporting areas such as irrigation, disaster prevention and mitigation, energy saving, the strategic and emerging industries, and small- and medium-sized enterprises.

The expenditure growth rate in 2011 could be 4 to 5 percentage points higher than GDP growth this year, and the fiscal deficit would basically remain at the same level as 2010, or slightly lower, to less than 2 percent of GDP, said Liu Yuanchun, associate dean of Economics School, Renmin University of China.

In March, government officials outlined an "appropriate" deficit of 1.05 trillion yuan ($150 trillion) for 2010, roughly 2.8 percent of GDP, and an increase of about 100 billion yuan from last year.

China's fiscal deficit hit 950 billion yuan last year, the highest in six years, but less than 3 percent of GDP.

Related readings:  China's Nov fiscal revenue grows 16.1% year-on-year  China's Oct fiscal revenue rises 14.8% year-on-year  China Sept fiscal revenue rises 12.1%  China's fiscal revenue up 7.3% in August

From January to October, China's fiscal revenue increased by 21.5 percent year-on-year to nearly 7.09 trillion yuan, which exceeded whole-year revenues in 2008 and 2009. Over the same period, expenditure rose by 22.3 percent to more than 6.09 trillion yuan, according to the Ministry of Finance.

Liu predicted China's 2010 fiscal revenue will increase by 20 percent year-on-year to 8.2 trillion yuan, exceeding the original budget by 800 billion yuan.

"But still, the 'proactive' policy will be very different from 2009 and 2010, when the government took a special fiscal stance to stimulate economic growth," he said, adding that the central government deficit will show a declining trend, but that national debt issued for local government may expand to 400 billion yuan.

Yang Zhiyong, a fiscal economist with the Chinese Academy of Social Sciences, said China could still expand the deficit and strengthen fiscal expenditure appropriately next year, but the deficit should be controlled below 3 percent of GDP.

Proactive fiscal policy could offset the effect of shrinking monetary policy and support economic growth of more than 9 percent, said Lu Ting, an economist at Bank of America-Merrill Lynch. He predicted that the 2011 deficit will stay above 2 percent of GDP, while loans and money-supply increase will slow to 14 or 15 percent.

China's GDP growth rate next year will slow to 9.6 percent from this year's 10.1 percent, but still show stable and healthy development, according to a report from Renmin University of China.