China fiscal deficit to go up 50 percent

Dec. 27, 2012 at 10:21 PM
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BEIJING, Dec. 27 (UPI) -- China's fiscal deficit could go up by up to 50 percent next year to 1.2 trillion yuan, or $192.4 billion, under government plans.

The increase would push the fiscal deficit from 1.5 percent of GDP in 2012 to 2.2 percent in 2013, China Daily reported Friday.

Citing China Business News, the report said the government plans to widen the deficit to 1.2 trillion yuan from a projected 800 billion yuan for 2012.

Analysts told China Daily a higher deficit would allow the government, led by Xi Jinping and his new team of leaders, to make larger investments in infrastructure and offer tax cuts. Tax cuts would help boost domestic demand, which policymakers want to reduce China's reliance on exports, which have been declining because of the global crisis.

Liu Yuhui, chief economist with Huatai Securities Co. Ltd., told China Daily the move suggests the government is trying to promote an economic restructuring through a short-term fiscal deficit, which he said would be a sound, market-oriented move. He said increased fiscal expenditure could also help reduce debt and eliminate overcapacity in some industries.

"In the short term, these expenditures are necessary, and will be beneficial for economic transformation, laying the foundation for more fiscal income and a lower deficit in the future," he said.

But some other experts did not agree, saying a higher deficit would come at a time when government revenue is declining and would work against government's intention to lessen fiscal stimulus to kick-start the economy.

Figures show while government revenue rose 11.9 percent in the first 11 months of this year, spending was up 17.9 percent during the same period.

Another expert said while it may be easy to increase the deficit, it would become harder to reduce it.

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