Annual work conference will set tone for 2015 fiscal policy

Economists are calling for more proactive fiscal policies to counter the deepening slowdown in growth, as China's annual Central Economic Work Conference is set to start on Tuesday.

The meeting, usually held in early December, sets the tone for next year's macroeconomic policy.

Gao Peiyong, director of the National Academy of Economic Strategy under the Chinese Academy of Social Sciences, told a recent forum that a larger budget deficit is likely.

Assuming 7 percent GDP growth in 2015, Gao said, the deficit would be between 1.35 trillion ($220 billion) and 1.9 trillion yuan.

China set a 1.35 trillion yuan fiscal deficit target for this year, about 2.1 percent of GDP — still modest compared with international standards — but 150 billion yuan more than 2013.

Li Xunlei, chief economist at Haitong Securities, is expecting the deficit ratio to rise to 1.7 trillion yuan, or 2.5 percent of GDP.

Xu Gao, chief economist at Everbright Securities, argues that the country's fiscal policy could be bolder with a deficit of at least 2 trillion yuan.

"Fiscal policy should assume a larger responsibility in stabilizing the growth rate," Xu said.

Xu's comment is not new.

Chinese economists have been suggesting a more active fiscal policy for years, saying the government has been conservative in expanding its deficit.

It has run a deficit of under 2 percent for four of the past eight years, and even at the height of the global financial crisis in 2009 China ran a deficit of 2.8 percent.

The European Union has set a 3 percent upper limit for its member economies.

Several recent signs have shown policymakers are already taking note.

The National Development and Reform Commission, the top economic planner, has approved 28 railway projects in the past month and a half alone, pushing the whole year's railway investment to nearly 1 trillion yuan.

The largest factor influencing projections for a larger deficit is the central government's move to curb borrowing and spending by local governments beyond that outlined in their budgets. Such off-budget spending has driven local government debt to a record high.

Provincial governments are involved in sizable off-budget capital spending through government-related enterprises, and China's fiscal deficit would be much higher if that spending was counted.

As the central government restricts off-budget spending, it has to allow for greater spending to appear on local government budgets, analysts said.