Always the Same Solution: China Proposes More Debt as Growth Slows

via Yahoo:

(Bloomberg) — China’s Finance Ministry is set to propose a small increase in the targeted budget deficit for this year as officials seek to balance support for the economy with the need to keep control of debt levels.

The ministry agreed the proposed deficit target of 2.8 percent of gross domestic product at its annual work conference in December, two people familiar with the matter said. The figure, which compares with 2018’s target of 2.6 percent, will be presented for approval at the National People’s Congress, China’s legislature, in March. The final number could still change.

While officials have pledged a pro-active fiscal policy this year amid a slowdown in the economy that’s being worsened by the trade war with the U.S., the proposed deficit expansion is smaller than many economists had forecast. At the same time, officials can use so-called special bonds, which don’t affect the overall budget, to finance local government projects and spur infrastructure investment.

The people asked not to be named as the matter isn’t public. The Finance Ministry didn’t immediately respond to a fax seeking comment.

Expectations of aggressive fiscal policy and tax cuts in China may be misplaced, leaving monetary policy a greater role in supporting the economy, according to Barclays Plc.

“China’s fiscal space is constrained by legacy issues arising from the extraordinarily expansionary policy in the last downcycle, a deteriorating fiscal position, and elevated contingent liabilities, including future pension costs,” economists led by Hong Kong based Chang Jian wrote in a note.

 

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