China mulls fiscal deficit change
Jennifer Li and agencies
Tuesday, December 22, 2015
Beijing will widen its fiscal deficit threshold and stimulate the housing market next year to put a floor under the economic slowdown.
Monetary policy must be more "flexible" and fiscal policy more "forceful" next year as leaders create "appropriate monetary conditions for structural reforms," according to statements released by Xinhua News Agency yesterday at the end of the Central Economic Work Conference, an annual meeting of top leaders. It said the fiscal deficit ratio should be raised gradually.Looking toward 2016, officials also promised assistance to rural residents seeking to buy homes in urban areas, and called for lower home prices to help developers destock a glut of unsold properties. Outdated restrictions on the property market will be removed, and the government will promote "consolidation of property developers," Xinhua said. The government will take steps to expand aggregate demand while pushing forward "supply-side reform" next year, Reuters reported, citing an insider."We need the economy to grow at a certain pace for structural reform to be carried out," the source said.Expectations of additional stimulus have been strengthened by capital outflows after the yuan's devaluation in August, a series of weaker-than-forecast economic data and the aftermath of a stock market slide that started in June.China has been struggling to reach its economic growth target of about 7 percent this year, while President Xi Jinping has said the country must keep annual average growth of no less than 6.5 percent over the next five years."Expanding the fiscal deficit ratio is the best choice available," said Yao Wei, a Paris-based China economist at Societe Generale. "More `flexibility' in monetary policy means further easing, even as a supplement to fiscal policy."To step up "supply-side reforms," a strategy strengthened by Premier Li Keqiang earlier, the government will deal with overcapacity, and lower costs for businesses by cutting taxes and fees, Xinhua said.