THE World Bank has warned the huge hole in Chinese government finances could threaten monetary stability.
The bank estimates the Government's annual fiscal deficit could be as high as 10 per cent of gross domestic product, Pieter Bottelier, the head of its office in Beijing told a seminar.
'This is a potential threat to monetary stability in China,' Mr Bottelier warned an international conference organised by Goldman Sachs to mark the 85th anniversary of Qinghua University.
He said official figures grossly understated the huge hole in Chinese government finances and solving the problem represented the most important challenge to the success of reforms.
Observers are concerned China is not tackling the problem of state-run enterprises, which soak up large amounts of subsidies, with enough vigour.
But Mr Bottelier said that while he wanted Beijing to do more, the problem was not as urgent as in Eastern Europe and Russia.
He also stressed it would be a mistake to try to restructure the debts of these enterprises before embarking on management and accountancy reforms.
