China is cutting its budget deficit by nearly 20 billion yuan (US$2.4 billion) this year as it relies less on state spending to stimulate the economy, Finance Minister Jin Renqing said in Beijing yesterday.
Tax reform is also high on the 2005 agenda as are heightened efforts to maximize revenues and cut government expenses, Jin told a press conference on the sidelines of the annual session of the National People's Congress, China's legislature.
He also promised that the ministry stands ready to devote the funding needed to reform the country's state-owned banks.
And he confirmed that China is planning a fuel tax but said the time isn't right to enact one now.
Under the shift in macroeconomic policy, the central government deficit will be reduced by 19.8 billion yuan to 300 billion yuan.
The state will issue 80 billion yuan in long-term treasury bonds this year, 30 billion yuan less than in 2004.
The deficit will shrink to an estimated 2 percent of gross domestic product this year, a half percentage point lower than last year, the minister said.
He said the ministry will earmark more of this year's T-bond proceeds to agriculture, science, education, culture, health and social security, while promoting tax reforms in the countryside and improving the export tax rebate system.
"We'll vigorously promote reforms" to improve the investment environment, said the minister.
Implementing the new fiscal policy also calls for intensified efforts to increase tax revenue and reduce financial expenditures, he added.
Jin spoke highly of the so-called "proactive fiscal policy" the government had pursued since 1998 in the wake of the Asian financial crisis, replacing it was the new "prudent" plan of action.
He noted that 910 billion yuan in long-term T-bonds were issued in the past seven years, which contributed 1.5 to 2 percentage points to China's economic growth and helped the economy achieve a "soft landing."
Jin said that despite the achievements, some destabilizing factors have occurred in China's economic development such as excessive investment in several industries, a rapid increase in the money supply and a huge amount of non-government investment.
For more sustainable growth, "we should boost the development of agriculture, science, education, culture and health, social insurance and other industries," said the minister.
Jin also promised action on the reform of China's state-owned banks.
"We have to pay for the transformation of state-owned banks into joint-stock banks and the reshuffling of their assets, and the treasury is ready to foot the bill," Jin said.
He noted that the Finance Ministry has issued 270 billion yuan in treasury bonds to boost the banking sector, and will probably finance the transfer of an additional 1.4 trillion yuan of non-performing assets from state-owned banks.
The finance department may also adopt preferential tax policies to support the banks' joint-stock reform, either by allowing the banks to dispose of some non-performing assets before tax payment, or returning some of their income tax payments.
The central government has spent US$45 billion of its foreign reserves to bolster the balance sheets of state-owned Bank of China and China Construction Bank.
Jin also revealed that China plans to impose a national fuel tax but is waiting due to high global oil prices and domestic inflation.