China to Raise Budget Deficit by 50 Percent to Boost Demand

The elders must have overruled the western educated kids…

Note on China deficit spending:
The headline deficit spending is relatively low at 2% of GDP. The heavy lifting is done by state sponsored lending which is maybe 20%+ of GDP. Don’t know what level that is at currently.

China to Raise Budget Deficit by 50 Percent to Boost Demand

March 5 (Bloomberg) — China plans to raise its budget deficit by 50 percent this year as the central government cuts taxes and boosts measures to support consumer demand in the world’s second-biggest economy.

The gap will widen to 1.2 trillion yuan ($193 billion) in 2013 from 800 billion yuan last year, amounting to about 2 percent of gross domestic product, the Ministry of Finance said in its budget report to the National People’s Congress in Beijing today. Local governments will run a combined deficit of 350 billion yuan and the Ministry of Finance will issue bonds to cover their shortfall, according to the report.

The larger fiscal deficit indicates China’s incoming leaders may step up efforts to support expansion and address income inequality, with growth forecast to fall below the annual average of 10.5 percent the country reported under President Hu Jintao and Premier Wen Jiabao. Officials have pledged to make expansion more sustainable, emphasizing quality over speed and Wen said today he’s targeting 7.5 percent economic growth this year.

“The higher fiscal gap and improved consumption will be positive for the economy,” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said before the report. Boosting spending on the social safety net and education subsidies would reduce inequality and “help reverse the rising trend in the savings rate,” he said.

Except the deficit adds to non govt. savings, yuan for yuan.