Economy

China due for fiscal tightening soon, govt researcher says

(Agencies)
Updated: 2011-01-06 09:49

BEIJING - China should draw in loose fiscal policies before long and does not have room for big increases in state outlays on top of existing programs, a senior government researcher said in comments published on Thursday.

But Jia Kang, head of the Chinese Ministry of Finance's Institute for Fiscal Science, also told the overseas edition of the official People's Daily that Beijing was likely to officially announce a shift in its fiscal settings only after the changes were firmly in place.

"Now in fiscal and monetary policy, the first is looser while the second is tighter, and the fiscal side should stay loose for a time, but not for very much longer," the Chinese-language newspaper cited Jia as saying.

With projects to improve poor people's housing, upgrade healthcare, increase education spending and strengthen rickety dams already on its books, the Chinese government did not have room for other big new spending initiatives, said Jia.

Related readings: China's 2010 fiscal revenue to top 8t yuan  Fiscal revenue growth to slow  Govt to outline 2011 fiscal deficit target  China's Nov fiscal revenue grows 16.1% year-on-year

China increased interest rates for a second time in just over two months late in 2010 to rein in inflation, which hit a 28-month high of 5.1 percent in the year to November.

The government would gradually phase out its 4 trillion yuan stimulus program unveiled in November 2008, a Chinese business newspaper reported last month, citing unnamed official sources.

Jia suggested that a full shift in fiscal policies would take years, not months.

"At some time, active fiscal policies will phase out, but only some time after that will the transformation of fiscal policy be announced," said Jia.

"To judge from experience, this process is likely to take about three years from after 2011," he said.

The government would set a fiscal deficit of 900 billion yuan in 2011, down from 1.05 trillion yuan in 2010, Gao Peiyong, an economist at the Chinese Academy of Social Sciences, a government institute in Beijing, said in the same report.