China to continue proactive fiscal, prudent monetary policies

Source:Xinhua Published: 2013-3-5 9:57:35

China will maintain a proactive fiscal policy and a prudent monetary policy in 2013, as well as expand the economy by 7.5 percent, Premier Wen Jiabao said while delivering his last government work report at the parliament's annual session Tuesday.

The Chinese government has maintained the policies since 2011, as well as vowed to maintain their continuity and stability and make them more forward-looking, targeted and flexible.

"We should make our proactive fiscal policy play a bigger role in ensuring steady growth, adjusting the economic structure, advancing reform and benefiting the people, as well as maintaining a balance between boosting economic growth, keeping prices stable and guarding against financial risks," Wen told nearly 3,000 national legislators at the opening session of the 12th National People's Congress (NPC), China's top legislature.

"We will resolutely guard against systemic and regional financial risks," Wen stressed, adding that the government will guide financial institutions to operate prudently.

The government vowed to tighten oversight over financial risks in certain sectors and regions, as well as risks related to the off-balance sheet activities of financial institutions, thus making the financial sector's support for economic development more sustainable.

A proactive fiscal policy denotes a moderately expansionary policy that creates demand and stimulates the economy primarily by expanding domestic demand.

The ultimate goal of a prudent monetary policy is to maintain price stability, as it usually means a relatively expansionary monetary policy when the economy turns sluggish or a relatively tight monetary policy when the economy shows signs of overheating.

Fan Gang, an economist and former advisor for China's central bank, said the government's macroeconomic policies are balanced.

Fan attributed China's continuous growth over the past three decades partly to the government's macroeconomic control policies.

"Although the macroeconomic controls are subject to discussion, they are good policies that can prevent drastic fluctuations and major bubbles in the economy," Fan said.

China adopted a proactive fiscal policy and a moderately easy monetary policy to stimulate the economy due to the impact of the global financial crisis in 2009 and 2010, which marked a shift from the prudent fiscal policy and tight monetary policy implemented in 2008 for the purpose of bringing down inflation.

From 2005 to 2007, the Chinese government maintained a prudent fiscal and monetary policy.

To implement the proactive fiscal policy this year, the government will increase the deficit and government debt in combination with tax reform and structural tax cuts, as well as optimize government spending and improve management over local government borrowing, Wen said in his report.

Wen projected a deficit increase of 400 billion yuan to 1.2 trillion yuan (about 191 billion US dollars) in 2013 from last year's budgeted figure, with a central government deficit of 850 billion yuan and 350 billion yuan in bonds to be issued on behalf of local governments.

To maintain a prudent monetary policy, the government will improve its policy framework for exercising its macroeconomic controls and have monetary policy play a counter-cyclical role.

The government will lower the expected growth of the broad money supply (M2) to about 13 percent, the lowest target since 2009, when the government began specifying M2 growth figures in government work reports.

Fan sniffed at the notion that China relies too much on an oversupply of money to power its economy, as many developed countries are resorting to quantitative easing to buoy their economies.

"China has the world's highest reserve requirement ratio at 20 percent, thus freezing a great sum of credit," Fan said.

China's M2 rose by 13.8 percent in 2012. In previous government work reports, the government targeted M2 growth of 17 percent for both 2009 and 2010, 16 percent for 2011 and 14 percent for 2012.

"Traditionally, our macroeconomic controls are aimed at ensuring economic growth, stabilizing prices, creating jobs and maintaining a balance in international payments," said Wang Tongsan, an economist with the Chinese Academy of Social Sciences, a government think-tank.

"Now we need to add environmental protection as another major goal for our macroeconomic control policies," he said.


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