New Straits Times
‘SURPRISE’ NOT A NEGATIVE
Lower deficit target does not mean less govt spending, says official
CHINA’S first reduction in its budget deficit target in six years does not suggest less government spending this year or signal an intensified effort to reduce central government debt, said a senior official.
Premier Li Keqiang announced on Monday in his annual work report that Beijing had cut the budget deficit target to 2.6 per cent of gross domestic production (GDP) from three per cent last year.
Economists had expected it to be maintained or trimmed only slightly.
The surprise move, together with other official comments on other economic targets and the need for further reforms, was seen by some China watchers as an indication that the pace of fiscal expansion may be slowing as Beijing’s ramps up its campaign to contain risks in the financial system.
Greater caution over spending and tightening monetary conditions could retard the pace of economic growth not only in China but globally.
But Yang Weimin, the deputy director of the Office of the Central Leading Group on Financial and Economic Affairs, stressed that a separate governmentmanaged funds budget had a substantially bigger deficit — almost 70 per cent higher from last year with an increase of 550 billion yuan (RM338.5 billion).
This deficit is financed by the issuance of special purpose local government bonds — debt which is repaid through returns on investment projects rather than fiscal revenue.
The reduction in the target for the fiscal deficit as a proportion of GDP was thus “not a negative move for economic activity”, wrote Everbright Sun Hung Kai, a Beijing-based investment bank, in a note.
“Taking the two budgets into account, we estimate that the total budget deficit as a proportion of GDP will marginally increase this year to 4.1 per cent versus 4.0 per cent in 2017,” it said.
Yang also said China’s crackdown on riskier financing practices such as shadow banking were mainly targeted at the highly-leveraged corporate sector.
“The main task (of deleveraging) is to bring down the corporate debt ratio,” he said, while adding that China’s rapidly-rising household debt, largely due to a surge in mortgages, should “stop increasing”.
Economists at ANZ expect China’s total debt to grow by 10.6 per cent this year, slightly more than last year, but much slower than the compound annual growth rate of 16.4 per cent between June 2010 and June last year.
The debt-to-GDP ratio was estimated to remain at 254.7 per cent this year, the same as at the end of last year, said ANZ in a research note on Monday.