BEIJING/SHANGHAI, March 5, (RTRS): China will target a budget deficit of 900 billion yuan ($137 billion) this year, or 2.0 percent of GDP, the finance ministry said on Saturday, aiming to continue to shrink its deficit even as it steps up social spending.
The budgeted deficit for this year compares with an actual gap of 1 trillion yuan in 2010, which accounted for 2.5 percent of gross domestic product. In 2009, the deficit came in at 2.8 percent of GDP, as Beijing primed the pump of the economy through fiscal spending.
The ministry had originally reported a deficit of about 650 billion yuan for 2010, well below its original target of 1.05 trillion yuan, but contributions to the budget stabilisation fund and bringing forward some local government expenditures for 2011 enabled it to come in close to the original target.
In its 2011 budget, unveiled at the opening of the annual session of parliament, the finance ministry said China’s central and local governments would together aim for revenue growth of 8.0 percent and expenditure growth of 11.9 percent this year, both slowing from 2010.
Last year, revenues increased 21.3 percent and expenditures rose 17.4 percent, the ministry said, easily outstripping the original targets of 8 percent and 11.4 percent, respectively.
Tax revenue has grown rapidly in the past few years as the economy has boomed, and authorities intensified efforts to collect taxes.
The ministry is looking for domestic VAT to rise 11 percent this year to 2.3 trillion yuan, while property taxes are expected to bring in 11 percent more than a year ago and resource taxes are seen rising 22 percent.

Education
On the expenditure side, the ministry plans to increase spending on education, social security and employment by 14 percent, while that on low-income housing will rise 35 percent.
Spending on police and domestic surveillance will also hit new heights, with “public security” outlays planned to reach 624 billion yuan — 23 billion yuan more than the defence budget.
While the central government’s finances are seen as being in good shape, provincial and other local governments could continue to face a tougher time raising the money they would like to spend to help fuel local economic growth, analysts said. The finance ministry said it was planning to sell 200 billion yuan in debt on behalf of local governments this year — the same as last year.
At the same time, local governments could see income from the sale of land use rights, which make up a large portion of their revenue, take a hit as authorities try to cool the property market through limits on the purchase of property for investment purposes, analysts said.
That in turn could prompt local authorities to raise more funds via the financing vehicles through which they have racked up significant amounts of debt, which some experts say risks leading to a mountain of defaults down the road.
“Two hundred billion yuan in local government debt is a relatively moderate amount,” said an analyst with a large securities firm in Beijing.
“If it were up to local governments, that number would be higher, because they face more pressure than the central government.” Meanwhile, China will beef up its military budget by 12.7 percent this year, the government said on Friday, a return to double-digit spending increases that will stir regional unease.
The country’s growing military clout has coincided with a more assertive diplomatic tone, evident in spats last year with Japan and Southeast Asia over disputed islands, and in rows with Washington over trade, the yuan currency and human rights.
Chinese parliamentary spokesman Li Zhaoxing said the defense budget would be 601.1 billion yuan ($91.5 billion) in 2011, from 532.1 billion yuan last year. The budget went up by just 7.5 percent in 2010, after a long period of double-digit hikes.
Many experts believe China’s actual spending on the 2.3 million-strong People’s Liberation Army (PLA) is far higher than what the government reports.

“It’s widely accepted that these figures bear only a marginal relationship with the actual overall spending. Overall, it means the Chinese are saying we are going to (boost) our defense budget, whatever the real numbers are,” said Dean Cheng, a China security expert at the Heritage Foundation in Washington.
China, now the world’s second-largest economy, often points out that its defense spending pales in comparison with the United States and that its military upgrades are for defensive purposes.
The Pentagon last month rolled out a record base budget for fiscal year 2012 of $553 billion, up $22 billion from the level enacted for 2010.
But China has made some eye-catching moves in recent months, none more so than conducting its first test flight of a stealth fighter jet when US Defense Secretary Robert Gates was visiting Beijing in January.
China could also launch its first aircraft carrier this year, according to Chinese military and political sources, a year earlier than US military analysts had expected.
“The PLA is an important and powerful force in decision-making and there is obviously a desire to signal to the Chinese public and Chinese nationalists that China is going to continue to get stronger,” said Rory Medcalf of Australian think tank the Lowy Institute.
That signal may prompt greater wariness from neighbors.
Japan said on Thursday it scrambled military jets this week after Chinese naval planes flew near disputed islands in the East China Sea, although the Chinese did not enter Japan’s airspace.
The Philippines also demanded an explanation from China over an incident on Wednesday in a disputed area in the South China Sea, where it says two Chinese patrol boats threatened to ram a survey ship.