Fiscal Policy

Meltdown hits mainland output and fiscal revenue

PUBLISHED : Friday, 14 November, 2008, 12:00am
UPDATED : Friday, 14 November, 2008, 12:00am

Premier Wen warns impact of crisis worse than expected

The mainland's industrial output and fiscal revenue abruptly weakened last month, as Premier Wen Jiabao warned the global financial meltdown was hitting the country harder than expected.

Industrial output growth slowed in October to its lowest level in seven years, adding to signs that an economic downturn is worsening as Beijing rushes to launch a massive stimulus package.

Fiscal revenue dropped 0.3 per cent from October last year, the first decline in 12 years, the Ministry of Finance said. That was a sharp reversal from earlier in the year as a slowing economy weighed on the government's tax intake.

The downbeat economic figures came as Mr Wen made one of his most sombre assessments yet of the effect of the global financial turmoil on the economy.

'The impact of the global financial crisis on the Chinese economy is much worse than many had expected,' Mr Wen was quoted as saying in a statement posted on the National Bureau of Statistics website.

In a separate statement about the 4 trillion yuan (HK$4.54 trillion) stimulus plan, the Ministry of Finance warned the economy faced the risk of a drastic decline.

The ministry would strengthen tax collection and cut unnecessary spending by government agencies to help deal with the plan's cost, it said.

Industrial production grew 8.2 per cent last month from the corresponding month a year ago, compared with 11.4 per cent in September, the statistics bureau's data shows.

Ha Jiming, the chief economist at China International Capital Corp, said both the industrial and revenue data suggested the economy was rapidly deteriorating.

'The industrial data, the worst since 2001, suggested the economy is worsening at an accelerated pace as a result of slowing growth in export and real estate, the two engines of the economy,' Mr Ha said.

Sun Mingchun, an economist with Nomura International, said he expected the production slowdown to continue until the second and third quarters of next year.

'In our view, industrial production growth will be even lower in the months to come amid weakening global and domestic demand,' Mr Sun said.

The drop in fiscal revenue marked an abrupt reversal from last year, when the government's earnings surged by 32.4 per cent. As recently as July, fiscal revenues were up 16.5 per cent year on year.

A weakening economy and falling corporate profits, along with a series of tax cuts to cushion firms from the slowdown, were behind the drop, the ministry said on its website.

Still, fiscal revenue in the first 10 months rose 22.6 per cent to 5.43 trillion yuan, well above the 14 per cent increase projected in the government's budget.

Fiscal expenditures in the first 10 months were 4.06 trillion yuan, an increase of 24.5 per cent from the same period last year, according to the statistics bureau.

Mr Ha said it was the first time that fiscal revenue saw negative growth since 1996, which would cast doubt on the government's plan to boost spending through the much-vaunted stimulus package.

The central government has announced a series of measures to stem a rapid slowdown in economic growth by boosting public spending and private consumption.

The People's Bank of China has also cut interest rates three times in two months and relaxed restrictions on lending to stimulate growth.

Economic growth in the third quarter eased to 9 per cent, down from 10.1 per cent in the second and 10.6 per cent in the first, and well below last year's 11.9 per cent expansion.