News, page 3 issue 407 February 23
Translated by Liu Peng
Original article: [Chinese]

China's budget deficit is expected to reach 950 billion yuan this year, nine times higher than that of last year, the Economic Observer has learned.

The additional deficit included the anticipated issuance of 200-billion-yuan worth of bonds for supporting local government projects. The whole budgeet defecit draft would be deliberated during the country's top legislative conference scheduled in early March.

Meanwhile, the National People's Congress Financial and Economic Affairs Committee had already held in-depth discussions on expanding fiscal spending and upping state debt, and opinions diverged on the subject, the EO learned.

A source close to the matter told the EO that, during the discussions, some committee members claimed that a massive deficit was necessary in order to maintain 8% economic growth and safeguard employment.

Others pointed out that the deficit's proportion of China's domestic gross product (GDP) was expected to be under 3% - the internationally accepted level, according to the source.

However, another camp argued that the massive deficit would likely incur more risks, especially if the local governments failed to pay off the bonds' principal interests and issuance costs on time, said the source.

Over the past two years, China has kept its fiscal deficit under 1% of its GDP -- 0.8% and 0.4% for 2007 and 2008 respectively.

The EO learned that such massive deficits were far beyond market expectations.

Last December, Chinese officials had projected a budget deficit of 500 billion yuan for 2009, but the figure was upped to 650 billion yuan a month later.

Then again in late January, the Chinese central government announced a plan to issue 200-billion-yuan in bonds on behalf of local governments to support local-level public investment. The move would skirt existing laws that prohibited local governments from running a budget deficit, thus also barring local authorities from raising funds through bonds issuance.

As of the latest information the EO obtained, the Ministry of Finance had put forward a budget with 950 billion yuan in overdraft.

The multiple reviews of budget deficits in such a short span of time puzzled Liu Shangxi, vice-director of Research Institute of Fiscal Science under the Ministry of Finance.

Liu said given the widening gap between this year's fiscal revenues and expenditures, such frequent reviews could add more pressure for imbalance.

In January, State fiscal revenues had seen a decline of 126.5 billion yuan, or 17.1% down from a year earlier. Meanwhile, China's state spending had increased -- it invested some 700 million yuan in battling the recent drought that struck 15 northern provinces, and it also spent some 300 billion yuan in its on-going medical care reform this year.