Beijing spending forecast to rise 17pc to 3.4 trillion yuan this year

PUBLISHED : Thursday, 06 March, 2008, 12:00am
UPDATED : Thursday, 06 March, 2008, 12:00am

Central government can spend up despite deficit, say economists

Central government spending is forecast to rise 17.8 per cent to 3.48 trillion yuan (HK$3.82 trillion) this year, with more going towards infrastructure, education, social security and scientific research.

Despite plans to reduce the deficit from 200 billion to 180 billion yuan this year, Beijing still has room to spend big on infrastructure, agriculture, medical care and other aspects to improve people's lives, economists say.

Fiscal policy is expected to play a bigger role than monetary policy in curbing inflation, the nation's top concern this year.

Beijing has vowed to increase subsidies to farmers to boost grain output because an insufficient supply could lead to higher inflation and social unrest. Economists widely believe monetary policies cannot do much to stop consumer prices rising.

In the annual budget report presented yesterday to the nearly 3,000 National People's Congress deputies, the Ministry of Finance said the forecast deficit had been cut 20 billion yuan from last year, in line with prudent fiscal policy.

Beijing reported a 200 billion yuan deficit last year, despite a 34.6 per cent increase in revenue to 2.85 trillion yuan, following the withdrawal of 103.2 billion yuan into a 'budget tranquiliser fund' designed to balance revenue and expenditure.

The report said allocations for construction projects to improve farmers' living standards, water conservation, environmental protection and other outlays would total 152.1 billion yuan, compared with last year's 17.7 billion yuan.

Frank Gong, chief economist at JPMorgan Securities, said there was a lot of room to speed up investment in infrastructure.

'This should help cushion the negative impact on China's growth should global demand for Chinese products slow down too much. Investment growth in infrastructure and public utilities has lagged behind the expansion of manufacturing and the real estate sector,' he said.

Premier Wen Jiabao said China should increase investment in infrastructure in light of the recent snowstorms that caused transport bottlenecks and played havoc with the power supply.

Mr Gong said: 'The increased spending in education, social security and scientific research will further encourage private consumption. So we are holding to our 2008 real GDP growth forecast of 10.5 per cent, with steadily strengthening domestic demand and moderating export growth.'

The central budget for education will increase 45 per cent to 156 billion yuan this year, allocations for science and technology will rise 26 per cent to 113 billion yuan, and social security spending will be up 24 per cent to 276 billion yuan.

But He Zhenyi , a tax researcher at the Chinese Academy of Social Sciences, said it would be a challenge for Beijing to keep to the budget because lower-level administrations liked to spend to pursue gross domestic product growth. 'Local governments have the impulse to spend more and justify it in terms of national schemes to develop western, central and northeastern provinces,' he said. 'And the post-blizzard restoration plans gave legitimate excuses for more spending.'

It has been common in the past few years for government departments to go on spending sprees at the end of the year, whether or not the outlays are necessary.

'If they don't spend as much as the budget allows, they will be hard pressed to get the same amount of funding the next year,' Mr He said.

Ministry of Finance figures show that in the first 11 months of last year, national expenditure - by the central and local governments - was 3.71 trillion yuan. For the full year, it stood at 4.95 trillion yuan, meaning that central and lower-level governments spent 1.24 trillion yuan, or one quarter of the year's total, in December.

National revenue has swelled in recent years.

It rose 32.4 per cent to 5.13 trillion yuan last year, much higher than the 12.2 per cent rise in incomes of urban residents and the 9.5 per cent more received by rural people, after factoring in inflation.

Public discontent over wealth distribution was highlighted recently by a suggestion from Xing Pu , a Chinese People's Political Consultative Conference member from Shanghai, who urged the Ministry of Finance to grant 1,000 yuan to every mainlander to boost domestic spending and help the poor.

The ministry expects revenue to increase 14 per cent this year.