Finance minister: Deficit widening to support growth

Seeking to douse fears about China’s economy, the finance minister said yestersday that Beijing can manage its rising debt load as it steps up deficit spending to prevent a slide in growth.
The deficit target of 3 percent of gross domestic product announced Saturday, up from last year’s 2.3 percent, is in line with the ruling Communist Party’s long-term reforms, Lou Jiwei said. He spoke at a news conference during the annual meeting of China’s legislature.
Chinese leaders, long seen as skilled managers, are scrambling to reassure companies and investors the world’s second-­largest economy is on track following stock market and currency turmoil.
“We are increasing the debt-to-GDP ratio to support achieving a medium- to high-
speed rate of economic growth,” said Lou. “Why do we do that? Because we don’t want to see a decrease in economic growth and because we want to give strong support to structural reform.”
Lou, the finance minister, acknowledged China’s overall debt load has risen, partly due to stimulus spending in response to the 2008 global crisis. But he said the government still can afford to finance its deficits.
Government debts are “not very high” at 11 trillion yuan (USD1.7 trillion) or the equivalent of 40 percent of GDP, Lou said. That compares with over 230 percent of GDP for Japan, which is struggling to restore balance as its population swiftly ages, driving costs for health and elder care higher.
“The central government has room to continue to issue bonds,” he said.
Lou said Beijing needs to do more to control debts owed by local governments. A rapid run-up in such debt has raised concern about possible defaults and the impact on the state-owned banking system.
Last week, Moody’s Investors Service cut its outlook on China’s government credit rating from stable to negative, citing rising debt, capital outflows and “uncertainty about the authorities’ capacity to implement reforms.”
A Chinese deputy finance minister retorted that Moody’s was wrong and shortsighted in comments reported by the official Xinhua News Agency.