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Expansionary fiscal policy a must: Lou

By Liang Fei  (Global Times)    10:13, March 07, 2015
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Investment scale should keep economy in reasonable range, says finance minister

China has to adopt an "appropriately expansionary" fiscal policy to withstand downward pressure on the economic growth, Finance Minister Lou Jiwei said Friday.

A moderately expansionary fiscal policy is a must as China needs to avoid a sharp slowdown in economic growth and at the same time also needs to gradually deleverage, Lou said at a press conference during the Third Session of the 12th National People's Congress. Lou remarked that not only China's economic growth, the global economy has also entered into a "new normal" stage, which features increasing pressure of deflation and unclear prospects of recovery, which will also dampen China's growth.

To bolster growth, China has raised its fiscal budget deficit to 2.3 percent of GDP, or 1.62 trillion yuan ($259 billion) in 2015, compared with 2.1 percent of GDP in 2014, according to the government work report delivered by Premier Li Keqiang on Thursday.

Lou said that the actual deficit would be around 2.7 of GDP percent after incorporating a planned spending of 200 billion yuan, which will offer a strong boost to the economy.

Lian Ping, chief economist at the Bank of Communications, said that fiscal spending is expected to be directed to areas like social security, infrastructure projects and the upgrading of China's manufacturing industry, which could benefit people's everyday lives and also economic restructuring.

The government work report noted that innovative government financing should be adopted as the country's fiscal revenue growth has declined to 8.6 percent in 2014, the lowest in more than two decades. A public-private partnership model, which will allow more participation of private capital in the infrastructure and utilities sectors, has been encouraged in the report.

Investment is still crucial for China's growth, experts said. Lian noted that investment in the real estate sector, a pillar for the economy, is slowing down, thus investment in infrastructure should be boosted to maintain growth.

Data from the National Bureau of Statistics showed that growth in China's real estate investment was 10.5 percent in 2014, 9.3 percentage points lower than that in 2013.

The real estate sector has been an important source for the country's fiscal revenue. But due to the cooling housing sector, tax revenue from the sector is also declining. Data from the Ministry of Finance showed that business tax in the sector only increased by 4 percent in 2014, compared with 33.6 percent in 2013.

The real estate sector is crucial to China's economy, Li Yining, a renowned economist and a political advisor, told media at a Friday press conference of the annual meeting of the national advisory body.

China's GDP growth slowed to 7.4 percent in 2014, as the country now attaches more emphasis on the quality of economic growth.

In its work report, the government has set a growth target of "around 7 percent" in 2015, and it also noted that housing consumption should be "stabilized."

Despite the enlarged deficit, experts said that mass stimulus policies like that in 2008 are unlikely to happen again. "No mass stimulation is needed with the 7 percent growth target," Zhu Baoliang, an economist with the State Information Center, a government think tank, told the Global Times on Friday.

The mounting local government debt, which was mainly generated from previous stimulus, is regarded by experts as a major risk for China's growth. But Lou said Friday that the local debt in general is "controllable".

Justin Lin Yifu, former chief economist of the World Bank, said at the press conference of the advisory body that China could manage to meet the 7 percent growth target this year, or possibly manage even higher.

Lou's other remarks

Three public expenditures

"It is nonsense to say that," Lou said, denying rumor that the government spent 300 billion yuan ($47.9 billion) on public vehicles, receptions and trips, known as the "three public expenditures."

The central government's expenditure of the funds was 7.1 billion yuan last year, 800 million yuan lower than that of 2013, he said. "The funding for this year would not exceed last year's level."

Lou said he was not clear about the use of funds in local governments, but he estimated the total figure would about 40 billion yuan, rather than "300 billion yuan."

Debt risk "controllable":

The risk of China's local government debt is generally controllable, Lou said.

"China's local government debt problem is a fact," Lou said, "the government is guarding against regional financial risks."

"On the whole," he said, "the risk of China's local government debt is controllable." The local government debt piled up in past years should be resolved step by step, he said.

A slowing Chinese property sector has fueled worries that it may undercut local governments' fiscal revenue and blow up risks over local government debt.

AIIB offer open for Japan

The offer of being a founding member of the Asian Infrastructure Investment Bank (AIIB) is still open but the ball is in Japan's court, Lou said.

The chance to be an AIIB founding member is available for all Asian countries, including Japan, before March 31. The Japanese government has been updated with the result of talks among the bank's current founding members, Lou said.

"Whether Japan will join, we do not know. It is Japan's own decision," he said. 

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Editor:Zhang Qian,Bianji)

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