China Plans Slightly Larger 2019 Fiscal Deficit Target of 2.8 Per Cent

Chinese President Xi Jinping Photo Source: Reuters

China Plans Slightly Larger 2019 Fiscal Deficit Target of 2.8 Per Cent

Report from Bloomberg citing two unidentified sources said China’s finance ministry will propose an annual fiscal deficit target of 2.8 per cent of gross domestic product (GDP) for 2019, up slightly from the 2.6 per cent target set for 2018.

China’s annual economic targets, usually announced in March, are closely watched by financial markets for hints of any changes in its fiscal and monetary policies, which shifted into growth-boosting mode last year as the economy started to slow.

The report said the proposed target was presented during the ministry’s annual work conference in December and remains subject to approval by China’s legislature.

Policymakers have pledged to step up support for the cooling economy this year, following a raft of measures in 2018 including fast tracking infrastructure projects and cuts in banks’ reserve requirements and taxes.

Officials have pledged more aggressive tax reductions in 2019, fanning expectations among economists that the annual budget deficit ratio could be lifted to 3 per cent.

But the deficit could be limited by an expected jump in special bond issuance by local governments to fund infrastructure investment. Some economists expect such bond issuance to hit 2 trillion Yuan ($292.53 billion), up from 1.35 trillion Yuan last year.

In 2018, the government cut the annual budget deficit target to 2.6 per cent of GDP from 3 per cent in 2017 – the first cut since 2012.

But officials said fiscal policy remained supportive given a 550 billion Yuan jump in planned special bond issuance by local governments to fund key projects.

Data later this month is expected to show China’s economic growth slowed to around 6.6 per cent in 2018 from 6.9 per cent the previous year.

However, analysts are forecasting a further loss of momentum in coming months before policy support measures begin to kick in.

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