Lianhe Zaobao:

Chinese Premier Li Qiang mentioned in this year's government work report that the targeted fiscal deficit-to-GDP ratio is set at 3%. Why does China set the number at 3% this year? How to interpret this percentage? Thank you. 

Huang Shouhong: 

As is widely recognized, the fiscal deficit-to-GDP ratio serves as a crucial indicator reflecting the strength of fiscal policy and degree of fiscal risk. Globally, there is a "red line" of a 3% fiscal deficit ratio, but it is not a golden rule as many countries' deficit-to-GDP ratio may far surpass 3% at times, with some reaching double digits. In China's case, our deficit-to-GDP ratio has been kept within a reasonable and moderate range over the years, taking into account factors such as supporting economic growth, preventing fiscal risks and achieving fiscal sustainability. Over the years, China's deficit-to-GDP ratio only exceeded the 3% mark in 2020 and 2021, during the response to the COVID-19 pandemic. Otherwise, it has remained below the level. In the beginning of 2023, the central government set a deficit-to-GDP ratio of 3% when arranging the budget. With the issuance of an additional 1 trillion yuan in special treasury bonds in the fourth quarter, which counted towards the deficit, the ratio rose to approximately 3.8%. This year, we have set the deficit-to-GDP ratio at 3%, the same as the budget arranged at the beginning of last year. Although this year's deficit ratio is slightly lower compared with last year's after the issuance of 1-trillion-yuan government bonds , the overall level is appropriate. The fiscal arrangement is in line with the overall positive trend of China's economic operations, sending an optimistic message to the international community, which is also conducive to controlling the government debt ratio and enhancing fiscal sustainability. It also reserves policy space to address potential future risks and challenges. After considering these elements, we have set the deficit-to-GDP ratio for this year at 3%.

Recently I noticed that some experts, scholars and institutions are discussing what China's deficit-to-GDP ratio should be. Some suggest a little bit over 3% while some say a little lower than 3%. Fiscal deficit-to-GDP ratio should be set according to the general fiscal policy tools. The report says the country will appropriately enhance the intensity of proactive fiscal policy and improve its quality and effectiveness this yea r, which requires coordinated deployment of various policy tools to unleash overall effects. These include deficit, as well as other policy tools such as special bonds of local governments, national debt and preferential tax and fees policies. Therefore, this year's lower deficit after last year's adjusted budget doesn't mean the proactive fiscal policy abates. Rather, proactive fiscal policies mentioned in the report shall be considered as a whole. Though the deficit-to-GDP ratio maintains at 3%, the expanded GDP leads to a total of 4.06-trillion-yuan deficit this year, which is 180 billion yuan more than the budget at the beginning of last year. Besides, 3.9 trillion yuan of special-purpose bonds for local governments will be issued this year, an increase of 100 billion yuan over last year. The fiscal revenue this year will sustain a growing trend, and the fiscal expenditure will be quite large. This year, general public expenditures in the government budget are projected to reach 28.5 trillion yuan, an increase of 1.1 trillion yuan over last year. Hence, the fiscal policy this year is appropriately strengthened, and the key is to spend the budget wisely on vital sectors. By doing so, we will guarantee sufficient funding for major national strategic tasks and efforts to meet the people's basic living needs as required by the work report. 

Thank you.