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Thursday, February 25, 2016, 09:35

China budget deficit may go up to 4% of GDP

By Xinhua

BEIJING - China could raise its budget deficit to 4 percent of GDP or even higher to offset the impact of reduced fiscal revenue and to support broader reforms, a central bank official wrote on Wednesday.

In an article published by "The Economic Daily," director of the central bank's surveys and statistics department Sheng Songcheng said the deficit increase would not incur big insolvency risks for the government.

China raised its budget deficit to 2.3 percent of GDP in 2015, up from 2.1 percent in 2014. A 3-percent deficit ratio, as stated in the 1992 Maastricht Treaty, is normally considered a red line not to be crossed.

But Sheng said there should not be a universal redline. Rather, the ratio should be determined by a country's debt balance and structure, economic conditions and interest rate levels, he added.

"The 3-percent warning line does not fit with China's reality," he said, citing China's relatively small outstanding debt, rational structure, continued growth in fiscal revenues and solid asset of state firms as among the factors backing his conclusion.

China's economy grew by 6.9 percent year on year in 2015, its lowest annual expansion in a quarter of a century, prompting calls for the government to do more on the fiscal front to arrest the slowdown.

Earlier this month, Vice-Finance minister Liu Kun said China would gradually raise its fiscal deficit ratio, increase government debt issues and set a limit on new local government debt.

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