China's fiscal deficit may hit new high

China's fiscal budget deficit is expected to hit a record-high of 1.2 trillion yuan (193 billion U.S. dollars) in the new fiscal year to shore up the slowing economy, Bank of Communications (BOC) has said.

The estimated scale is the largest on record, up from last year's budget deficit of 800 billion yuan and the real deficit of 1.07 trillion yuan, according to a report released Wednesday.

Funds spent that will increase the deficit will go toward key infrastructure projects geared toward improving people's lives and making room for tax cuts, which will significantly support economic growth, the report noted.

After the government cautiously eased its monetary policy and fast-tracked investment projects, China's economic growth quickened to 7.9 percent in the fourth quarter of 2012, ending a seven-quarter slowdown.

China's top leadership has decided to maintain the prudent monetary policy and proactive fiscal policy in 2013 to prevent the economy from sliding further.

"The proactive monetary policy could probably mean expanding the deficit scale, accelerating infrastructure investment and scaling up structural tax cuts," the report said.

"Budgeting for a larger deficit aims to cope with the economic downshift, but that does not necessarily suggest that the economic picture will be uglier than that of 2010," Zhao Quanhou, a researcher with the Ministry of Finance (MOF) was quoted as saying in a report on the cainxin.com.

Although the absolute deficit scale may hit a new high, the deficit to GDP ratio, which measures the safety of the deficit scale, will not necessarily follow suit, he said.

To cope with the global financial crisis, China has implemented a proactive fiscal policy since 2009. The budget deficit was 950 billion yuan in 2009, 1 trillion yuan in 2010, 850 billion yuan in 2011 and 800 billion yuan in 2012.

The deficit to GDP ratio was 2.83 percent in 2009, 2.48 percent in 2010, 1.8 percent in 2011 and 1.56 percent in 2012.

If the GDP grows 8 percent in 2013, the deficit-to-GDP ratio will stand at 2.2 percent.

News portal Caixin reported that the MOF had submitted the draft budget to the Financial and Economic Committee of the National People's Congress (NPC), China's top legislature, for preliminary examination.

The draft plan will be released to the public and discussed at the NPC's annual meeting, which will commence on March 5.