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

THE CHINESE government is planning to sell an unprecedented amount of bonds to the country's workers and peasants to raise money to fund a sharply higher deficit. Liu Zhongli, the Finance Minister, said yesterday that the 'contradiction' between the supply and the demand for funds had become 'acute'.

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.

(Photograph omitted)

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + Uncapped OTE: SThree: Trainee Recruitment Consulta...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + Uncapped OTE: SThree: Trainee Recruitment Consulta...

Recruitment Genius: Production Operative

£13000 - £17000 per annum: Recruitment Genius: Due to a period of sustained an...

Recruitment Genius: Digital Marketing Content Leader

£22000 - £25000 per annum: Recruitment Genius: This role requires a high level...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent