Wider fiscal deficit to boost economy, counter slowdown

Updated: 2015-03-06 07:15


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Economists said implementation of the budget will be crucial. In past years, the deficit has come in considerably below target. In 2014, the actual fiscal deficit was 1.13 trillion yuan, or 1.78 percent of GDP. If the 2.3 percent fiscal deficit is strictly implemented, it could be a significant boost over last year.

Analysts also noted the change in wording of China's fiscal policy.

The Government Work Report promised to "increase the strength and effectiveness" of fiscal policy. That wording implies a step forward from the Central Economic Work Conference held late last year, which promised "more strength" in fiscal policy.

Local governments' aggregate fiscal deficit was enlarged to 500 billion yuan from 400 billion yuan last year. The Ministry of Finance in its report said that besides general municipal bonds, provincial governments will also be allowed to issue "special bonds", which China International Capital Corp projected to be 300 billion yuan.

Under the more proactive fiscal policy, the Government Work Report promised 800 billion yuan in spending on rail and 800 billion yuan on water projects. The target for the construction of subsidized housing is 7.4 million units, up from 7 million units last year.

A highlight in the Ministry of Finance work report is a commitment to offer incentives for local governments to speed up urbanization. It promised to "link the transfer payments that local governments receive to their performance in granting urban residency rights to eligible migrant workers within their jurisdiction".

Such a move would help China's 260 million migrants to have permanent roots in cities by giving them hukou (residence permit), which is critical for bolstering consumption and real estate demand.


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