<--China's Economy--> To take Keynesian 'road' to prosperity???
Kemble:
Since you are interested in China,particularly the future of Dell in China I thought this news might be of interest to you.
As for my opinion on the budget,hey I have no problem with Chinese government spending a little to maintain economic expansion particularly at a time china is surrounded by trouble economies,anything to get it going and avoid a recession and economic calamity a la South East Asia is fine with me. I hope the government buys a boat load of computers and enterprise computing products from Dell,now that Dell got IBM on their side it shouldn't be all that difficult.Like the professor (the Harvard guy) said there is nothing wrong with a little deficit if money is spend wisely,and the projected deficit is well below accepted international standard and certainly well below the accepted norms of some the western European countries.
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China Takes Keynesian Road with Record Budget Deficit of US$17 Billion in 1999
(3/4/1999) China will announce an annual budget deficit of a record RMB 140 billion (US$16.9 billion), a 56% increase over the previous year, when the National People's Congress (NPC) convenes for its annual two-week meeting on Friday, the March 3 Ming Pao newspaper of Hong Kong reported.
Many news organizations received a leaked report ahead of the NPC meeting on Friday.
"The Chinese are venturing into new territory with this Keynesian fiscal policy," said Richard Copper, a Harvard University professor who specializes in Chinese economics. "There is nothing wrong with [running a deficit] in principal, as long as the funds are used wisely."
China's fiscal deficit will be 1.7% of GDP, and with an outstanding debt of 10% GDP. These are both below the 2% and 60% international standards, respectively.
At the NPC meeting, China's 1999 economic growth will be officially projected at 7%. Last year, according to China's State Statistical Bureau, GDP growth fell to 7.8%, slightly below the 8% growth target.
On Saturday, China's Finance Minster Xiang Huaicheng will report that fiscal expenditure growth will be 14.6%, two percentage points lower than last year, but fiscal revenue is expected to drop four percentage points from last year's total revenue.
Zhu will announce at the meeting a continuation of the government's expansionary fiscal policies, including the issuance of more infrastructure bonds.
Last year, when the Chinese government adopted its expansionary fiscal policies, RMB 270 billion (US$32.62 billion) in treasury bills and RMB 100 billion (US$12 billion) in bonds for infrastructure projects were issued,
"China has enormous infrastructure needs," Copper said. "They have been quite austere in terms of spending. This is the time to do it."
Japan's current economic troubles were exacerbated by the improper use of government funds, Copper said, including spending the monies on political campaigns instead of the intended expansionary purposes. As long as China can control where the money is directed, the fiscal policy will be successful, he said.
On February 26, China's Ministry of Finance issued US$2.17 billion in bonds to financial institutions, marking this first issuance of 1999. A second bond sale of US$6 billion will be issued from March 10 through April 30.
"In the issuance of bonds, there is a danger of crowding out," Cooper said, "where banks instead of investing in enterprises are required to buy the bonds." This could weaken the effectiveness of the fiscal policies, he said.
Also at the NPC meeting, Zhu will call for the strengthening of foreign exchange controls, for continued exchange rate stability, for the maintenance of China's large foreign exchange reserves, and a continuation of a crackdown on illegal foreign exchange trading, the Ming Pao said.
The budget plan will include over RMB 3 billion (US$362.8 million) for the government's antismuggling campaign, marking the first time the budget will include funds to support the government's anti-smuggling efforts.
The smuggling of goods into China robs the government of valuable taxes and fees, and lowers demand for domestic products.
Zhu will tell Chinese exporters that they are likely to face another difficult year, and domestic demand will not be able to make up for a slow down in overseas sales.
Encouraging domestic demand through interest rate cuts will be one way to make up for the sagging export growth, Zhu will argue.
The budget plan will include a 12.7% increase in defense spending to RMB 100 billion (US$12.1 billion). Last year, China's army and judicial departments were order to divest themselves of all business ties. The increase defense allocation reflects the need to fill the resulting expenditure gap produced from this policy.
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