China’s Increased Budget Deficit Expectations in 2014

7 Mar

Rising expectations for improved social services alongside mounting environmental problems and an increase in military spending have caused China to unveil plans for a larger budget deficit in 2014. The budget deficit will rise 12.5% to 1.35 trillion Yuan ($221 billion) due to a 9.5% increase in fiscal stimulus alongside a 12.2% increase in military spending owing to maritime disputes with its neighbours Japan, Vietnam and the Philippines.

Due to economic growth slowing, the government is aiming to keep growth high enough in order to provide a sufficient number of new jobs. Over the past year, it used a mini-stimulus policy which involved spending on China’s infrastructure as well as tax breaks for business to achieve this same goal. This year, however, the government will have to find new jobs for workers that are displaced as it tries to deal with overcapacity in key manufacturing sectors.

In order to increase consumption levels, China’s government is aiming to shift the economy’s reliance on exports and foreign investment. This suggests that China is seeking endogenous growth rather than exogenous. As a result, consumers need a better social safety net to encourage them to spend.

This year Beijing plans to raise medical and health care spending by 15%, building on a 26% boost from 2013. There are plans to increase coverage for rural residents as authorities aim to expand medical coverage for the nations farmers alongside a strengthened pension system.

The finance ministry also stated it would increase spending on the environment by 7%, after last year’s drop of 9.7%. Li Keqiang is at the forefront of the campaign, and vowed to “declare war on pollution” during a speech to parliament. The nation is trying tackle the choking smog that has engulfed many of the nation’s major cities and the industrial waste that has polluted many of its waterways. Keqiang also noted how China’s environmental pollution is “nature’s red-light warning” against inefficient development.

References:

Kazer W (2014) “China Expects Larger Budget Deficit”. The Wall Street Journal. 5 March 2014 [Online]. Available at: http://online.wsj.com/news/articles/SB10001424052702304585004579419823159168590 [Accessed 7 March 2014]

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