Proactive fiscal policy projects confidence

Apart from setting the annual growth target of this year at around 5 percent, the same as that of the past year, which the country managed to realize, another noticeable point of the Government Work Report submitted to the country's top legislature for deliberation on Wednesday is that the country's Cabinet proposes to set the Chinese government's deficit ratio at around 4 percent this year, 1 percentage point higher than last year.

The deficit ratio is a major weather vane to measure the orientation of fiscal policy. In the past decade, the government deficit ratio of China has fluctuated between 2.3 percent and 3.8 percent.

The proposed increase in the deficit ratio is a strong signal that China will implement a more active fiscal policy this year in the face of the external and internal headwinds. A more proactive fiscal policy, if well implemented, will be conducive to promoting steady and sustainable growth of the economy.

The raising of the deficit ratio, an important means of macroeconomic regulation and a common practice in countries around the world to strengthen countercyclical regulation of the macroeconomy, is expected to help the government effectively smooth economic fluctuations.

Raising the fiscal deficit ratio can effectively expand the scale of fiscal expenditure, and the expansion of government spending will have a multiplier effect, stimulating demand from all sectors of society and further boosting economic recovery.

This is conducive to stabilizing employment and can better support scientific and technological innovation, and promote the optimization and adjustment of the economic structure.

Despite the immediate effect it can produce, the raising of the deficit ratio is by no means a hasty decision. The policymakers have done a lot of homework before determining the proposed deficit ratio. In the process, they will have comprehensively considered factors such as the overall needs of national development, the macroeconomic growth potential, macroeconomic regulation arrangements, the fiscal revenue and expenditure situation, and medium-and long-term fiscal sustainability.

Despite this, the country's lawmakers can still carry out further deliberation and analysis on the proposal to determine how the increased government spending should be used to better realize its intended effect.

Notably the Chinese government's debt ratio is lower than that of major economies as well as the emerging market countries. Its debt risks are generally controllable, providing it with enough room and necessary conditions for enhancing the deficit ratio.