3.23 trillion reasons to get China's fiscal house in order
Hu Shuli says the government's pledge to make better use of its accumulated revenues must end in an overhaul of the budget system
China's financial markets may be facing a liquidity crunch, but the government has a pile of money sitting idle. Not for long, though, if Chinese leaders get their way.
The State Council pledged last week to make better use of the fiscal revenues, a move which, if successful, will not only help reinvigorate the economy but also provide a major fillip to reform.
China is under tremendous budget pressure. In the first five months of the year, central government revenues grew by only 0.1 per cent, 6.9 percentage points off its target for the year. The combined local and central government revenues for the same period similarly fell short, growing by 6.6 per cent.
Of course, budget problems are to be expected in the wake of a financial crisis. But, this time, with economic growth slowing, spending is also skyrocketing: hefty investments are needed for social security, low-income housing and environmental conservation, among others.
The Chinese government is by no means poor. Its fiscal revenue deposits in the central bank reached 3.23 trillion yuan (HK$4 trillion) by the end of May. This does not include the hundreds of billions it deposited with commercial banks.
The root cause of this ballooning stash is bureaucrats' self-serving mentality. Government departments regularly ask for much more money than they actually need. This is why, near the end of the budgetary year, we see officials spending money as hard and fast as they can. Even so, what's left over has accumulated into no small mountain.