China state media: China should tolerate larger budget deficit – Reuters

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According to reporting by Reuters, Chinese state-run newspaper China Securities Journal is urging the government that tells it what to write to seek to slow down its deleveraging agenda in favour of increasing the budget deficit in order to support the Chinese domestic economy.

Key quotes

As an effort to steady rising debt levels after years of credit-fuelled investment, China cut its annual budget deficit target this year – a first since 2012 – to 2.6 percent of gross domestic production (GDP) from 3 percent in 2017. But slowing growth momentum stemming from structural changes in the economy and trade uncertainties call for a more “positive” fiscal policy in 2019 to ramp up infrastructure investment, China Securities Journal said in a front-page editorial on Friday.

“And as infrastructure projects are mainly funded by the government, the recovery in infrastructure investment needs an increase in fiscal deficit as support,” it said, adding that allowing a bigger deficit would also offset the impact of a drop in fiscal revenues due to planned tax cuts.

The newspaper suggested that China should not be too concerned about maintaining the deficit target within 3 percent of GDP.

Central bank research head Xu Zhong had said earlier this year China should rely more on fiscal policy to support the economy, adding that the government should use fiscal funds to replenish the capital of state-owned financial institutions and ease the strain in financial market deleveraging.

Some economists believe growth could cool to as low as 6 percent in 2019, which would be the weakest expansion for China since 1990.

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