Peking seeks cash from the masses: China will popularise the sale of bonds to fund its soaring deficit as the budget describes a 'still grim' financial situation
Saturday 12 March 1994
Meanwhile, although the central government's financial situation is 'still grim', Mr Liu announced that the published national defence budget would rise 20 per cent to 52bn yuan ( pounds 4bn).
This does not include any of the funds that the People's Liberation Army raises from its own enterprises and which analysts believe contribute to a much higher real military budget.
Presenting China's draft budget for 1994, Mr Liu said that demand for government funding would remain high. The crux of Peking's financial problems is that it has been forced to shoulder the burdens of reform, without obtaining its share of the profits.
In order to placate farmers, it has said it will raise grain prices; in order to head off worker unrest, it is committed to raising salaries faster than inflation. However, at the same time, the government's revenues this year are expected to grow more slowly, partly because China's struggling state industries will now be exempt from some levies while they try to reorganise themselves.
Mr Liu said that, after two years' of breakneck economic growth, 'bottlenecks' in infrastructure such as transportation, and serious inflationary pressures, the environment for economic growth was 'somewhat strained'.
The total amount that the government will have to find this year to cover its domestic deficit, domestic and foreign debt servicing commitments and planned new foreign loans is estimated to reach 129bn yuan, a 44 per cent increase on 1993.
China has this year revamped presentation of its domestic deficit figures in order to bring them into line with international practice and the 1994 domestic deficit is estimated at 66.9bn yuan.
For the first time the Chinese government plans to cover its debt without raising bank loans from the People's Bank of China. In a move believed to be backed by Zhu Rongji, the reformist deputy prime minister, the central government plans to sell 115bn yuan worth of treasury bonds this year.
'We must try every means to sell bonds to the people, making it convenient for them to buy bonds and cash them in at will,' said Mr Liu. 'Funds for old-age and employment insurance and the balance of postal savings accounts should be mainly invested in bonds,' he added.
The problem for the government is that treasury bonds have not in the past proved popular. The 1994 target is more than three times the amount of bonds issued in 1993 and a significant proportion of these failed to sell. Mr Liu admitted the planned bond issues were 'rather large' but did not suggest what would happen if bonds could not be sold. In the past, workers have protested when their salaries were docked and they were forced to purchase government bonds.
Under new tax rules that came into effect at the beginning of this year, the central government now requires local governments to repatriate a greater proportion of tax revenue to central coffers. In 1994, provincial governments are supposed to turn over 60.8bn yuan, but there has been some resistance in coastal provinces to part with their new-found riches.
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