Beijing heavy spending alert

Beijing's policy of heavy spending could not go on indefinitely, China's Finance Minister said yesterday, warning that government spending had risen too fast in the first quarter.

Xiang Huaicheng said first-quarter spending rose 23.9 per cent year on year to 351 billion yuan (about HK$328.95 billion) while revenue grew just 3.4 per cent to 380.78 billion yuan.

'The fiscal situation is grim. Revenue is growing too slowly and expenditure is growing too fast. Not enough money is being collected and too much is being spent,' the Finance Minister said.

The heavy spending comes from a stimulus package adopted in 1998 to offset the Asian financial crisis and resulted in government debt Mr Xiang put at 1.6 trillion yuan, or 16.7 per cent of gross domestic product.

The package was necessary and the price that had to be paid to stimulate growth, he said. 'But this policy cannot be kept going for a long time. No government or finance minister can guarantee that it will go smoothly. The change will be done gradually and might take several years. I cannot give you a timetable.'

His comments indicate a fierce spending-policy debate in the Government. Some deputies at the annual National People's Congress session last month questioned its effectiveness, saying it was raising government debt without stimulating consumer spending.

Mr Xiang is responsible for managing state debt and has watched it rise dramatically since taking office in March 1998, from less than 1 per cent of GDP to 2.7 per cent last year.