China's deficit to rise to 1.6 trillion yuan as Beijing announces 10pc spending boost to buoy economy
Deficit to widen by 270 billion yuan, as minister tells G20 China is unfazed by slower growth and PBOC denies yuan set for long devaluation
Beijing plans to increase fiscal spending to buoy the slowing economy, but analysts say it is likely to refrain from massive infrastructure-focused stimulus.
Finance Minister Lou Jiwei told the G20 summit in Ankara, Turkey, that spending would grow 10 per cent this year and dividends from some state-owned companies would be raised to make up some of the shortfall.
Lou said Beijing was unfazed by projections slower growth would last five years and it was being pro-active with its fiscal policy. Growth had been bolstered with 7 million new jobs in the first half of the year, he added.
Meanwhile, People's Bank of China governor Zhou Xiaochuan denied the yuan was set for a long-term devaluation.
The two-day gathering in Ankara, which began on Friday, came less than a month after Beijing shocked financial markets with a surprise devaluation of the yuan. The G20's final communique said global growth was short of expectations and urged states to avoid competitive currency devaluations.
Beijing's extra spending will widen its fiscal deficit by 270 billion yuan (HK$330 billion) to more than 1.6 trillion yuan.
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In March, Premier Li Keqiang predicted the deficit would account for 2.3 per cent of gross domestic product.
Analysts said despite its efforts to buoy the economy, Beijing would refrain from massive infrastructure-focused stimulus.
"[Recent levels of] 9-10 per cent growth achieved through stimulus packages are unsustainable, and have resulted in overcapacity and an increase in inventory," Lou said. "We must gradually digest the overcapacity and clear inventory."
The mainland economy expanded 7 per cent in the first half, and some analysts say it may dip beneath this for 2015 as a whole due to weak external, and lacklustre domestic, demand.
In the past two weeks, the State Council has rolled out a series of incentives to underpin the economy. These have included cutting interest rates for the fifth time since November 2014 and lowering the capital requirement for fixed-asset investments.
"A widening deficit [can help meet] expectations [for growth], and wouldn't be the most severe problem facing the Chinese economy," said Gu Weiyong, chief executive of Shanghai-based Ucon Investments.
"The key question is how to help companies survive the slowing economy."
The key question is how to help companies survive the slowing economy
Analysts called on Beijing to cut taxes to support millions of small enterprises, but doing so could make it harder for Beijing to keep to its fiscal balance sheet.
Since the premier took office in March 2013, he has set about transforming the economy into a consumer-driven model, advocating entrepreneurship and modernisation through technology.
Analysts said Beijing had shown signs it intended to increase fixed-asset investments to bolster growth. But the premier insisted only infrastructure projects capable of generating long-term returns and that benefitted the public would go ahead.
Last month, he backed a plan to build a network of underground pipelines that could cost more than 1 trillion yuan.
