• Mainland China's budget balance turned to a deficit of CNY111 billion, or 0.4% of gross domestic product (GDP), in 2008, from a surplus of CNY174 billion, or 0.7% of GDP, in 2007. The government expects the budget gap to widen further to CNY950 billion, or 2.9% of GDP, in 2009.
  


• The larger budget deficit in 2009 is the result of expected slowing in government revenue growth rather than a substantial increase in public spending.


• Total government revenue is estimated to grow by only 8.8% in 2009, after rising 19.5% in 2008 and 32.4% in 2007. Total government outlays are forecast to increase by 22.1%, smaller than a 25.9% rise a year before.
  


• While the budget balance is likely to stay in deficit in the near-term, improving the fiscal position should remain a long-term budgetary objective. Otherwise, growing deficits could have negative implications for the economy.
  
  

Mainland China's fiscal position had improved in recent years, with the balance in the general government account turning to a surplus of CNY174 billion in 2007 from a deficit of CNY315 billion in 2002. As a percentage of GDP, the budget balance rose to 0.7% from minus 2.6% during the same period. This trend reversed last year, however, as the budget account shifted back to a deficit of CNY111 billion, or 0.4% of GDP, reflecting a slowing of government revenue growth as a result of an economic slowdown.

Budget deficit set to rise

The deficit problem is expected to persist in 2009, as the government projects the funding gap to rise to CNY950 billion, or about 2.9% of national income.  Expenditure is expected to increase by 22.1% to CNY7,624 billion while revenue to grow by 8.8% to CNY6,674 billion.

In its budget statement for this year, the central government puts improving the low-income group's livelihood as its top priority. Representing about 58% of the total government expenditure, central government spending for 2009 would be mainly on the agriculture sector, healthcare, and education. Total expenditure on livelihood improvement and rural areas will grow by 25%, representing about a third of the central government spending.

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Economic Focus (May 13, 2009). Hang Seng Bank Limited. All rights reserved. Reproduction of article(s) in whole or in part is permitted provided the source is quoted. Please direct any inquiry to Economic Research Department, G.P.O. Box 2985, Hong Kong.