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China to increase deficit financing

By Wang Bo (chinadaily.com.cn)
Updated: 2008-12-17 15:47

China's budget deficit is set to go up to 500 billion yuan ($72.99 billion) in 2009 to aid the country's massive economic stimulus program, Chinese-language business press reported.

If the deficit plan wins approval from the national legislation in March 2009, the size of China's deficit financing will see a major rise of close to 180 percent from its 2008 level of 180 billion yuan.

The gap is expected to be filled by increasing the issuance of treasury bonds, unnamed sources close to the central government were quoted as saying in the Economic Observer.

The sources also said that the new fiscal deficit, totaling 320 billion yuan, will include 200 billion yuan for investment in public infrastructure, and the other 120 billion yuan for the reconstruction of areas hit by the Sichuan earthquake last May.

Up till now, China has had a low fiscal deficit/GDP ratio, with the figure at 0.6 percent in 2008. If the deficit size expands to 500 billion in 2009, the ratio will be around 1.79 percent, still lower than the 3-percent alarm threshold held by banking specialists.