China eyes fiscal expansion to stem sliding growth | Business| Economy and finance news from a German perspective | DW | 06.03.2015
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China eyes fiscal expansion to stem sliding growth

As growth forecasts fall, China's finance minister has promised higher government spending as a countermeasure. The world's second-largest economy is suffering from sluggish global demand and domestic woes.

Chinese Finance Minister Lou Jiwei on Friday called for fiscal expansion to help prevent a sharp slowdown in the country's economy this year.

"To withstand the downward pressures, we must adopt an appropriately expansionary fiscal policy," Lou told a news conference held on the sidelines of the annual meeting of China's National People's Congress, the country's rubber-stamp parliament.

Lou noted that the world's second-largest economy was facing pressures from a weak global recovery. At the same time, he said, domestic constraints such as high levels of local government debt must be adressed.

"We have to steadily deleverage, but must also prevent the economy from falling off a cliff," he added.

Lou made his call a day after Prime Minister Li Keqiang lowered the country's 2015 growth target to near 7 percent, down from about 7.5 percent last year. In 2014, China missed its target as the economy expanded by only 7.4 percent, which was the weakest rate of economic expansion in 24 years.

Deficit spending in the cards

For this year, Beijing is planning to increase its budget deficit to 1.62 trillion yuan ($258.61 billion, 234 billion euros), or around 2.3 percent of gross domestic product (GDP). Last year, the deficit came in at 2.1 percent - the widest since 2009, when Beijing unleashed a stimulus splurge in response to the global financial crisis.

But Lou said on Friday that the actual budget deficit would be around 2.7 percent of GDP this year, after incorporating government budget calculation reforms that are being implemented this year.

So far, however, Chinese leaders are ruling out big stimulus measures as China is struggling to deal with a mountain of local government debt, resulting from 4 trillion yuan in additional spending in the wake of the 2008 financial crisis.

According to Lou Jiwei, local governments were expected to repay more than 100 billion yuan in debt this year. In addition, the finance minister vowed to press ahead with fiscal reforms in a bid to lower local government debt piles.

uhe/sgb (dpa, Reuters)

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