China's finance minister flags wider fiscal deficit as economy cools

Fri Mar 6, 2015 3:32am EST
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By Koh Gui Qing and Judy Hua

BEIJING (Reuters) - China will pursue an expansionary fiscal policy this year to prevent its economy from stalling, Finance Minister Lou Jiwei said on Friday as he assured investors that authorities are keeping an eye on heavily-indebted local governments.

Asked how China would manage its rising debt levels as its economy loses steam, Lou said the country has to balance the need to deleverage without pushing the economy over a "cliff".

To underscore the importance of state spending, he said China's actual fiscal deficit should be worth 2.7 percent of its 2015 gross domestic product (GDP) after taking into account 112.4 billion yuan ($18 billion) that was allocated to previous budgets but was not yet spent.

China had announced on Thursday a planned 2015 fiscal deficit of 2.3 percent of GDP, or 1.62 trillion yuan ($258.61 billion), at the opening of the annual meeting of the National People's Congress, the country's parliament.

A fiscal deficit of 2.7 percent compared with last year's deficit of 2.1 percent and would be China's widest since 2009, when Beijing splurged on stimulus to counter the global financial crisis and chalked up a deficit of 2.8 percent.

"To withstand the downward pressure, we must adopt an appropriately expansionary fiscal policy," Lou told reporters at an annual press conference. "We have to steadily deleverage, but must also prevent the economy from falling off a cliff."

He said China's economy is pressured by a weak global economic recovery and domestic constraints that included the need to reduce debt levels gradually.

"The proportion of debt in some areas is too high, and we will pay more attention to those," Lou said.   Continued...

Journalists raise their hands to ask questions to China's Finance Minister Lou Jiwei at a news conference  in Beijing March 6, 2015. REUTERS/Kim Kyung-Hoon