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'Stimulus measures to persist in 2010'
By Zhu Ping (China Daily)
Updated: 2009-12-08 07:15
China will not cease its stimulus package measures next year as leaders reiterated their commitment to a proactive fiscal policy Monday.
At the pivotal Central Economic Conference, which began Saturday and wrapped up Monday, President Hu Jintao and Premier Wen Jiabao said it was important to maintain its macroeconomic policies.
"It's a clear sign that China will not take an exit strategy next year. In terms of fiscal policy, it means the government will continue its investment and tax-cut policies," said Su Ming, vice-director of the Research Institute for Fiscal Science at the Ministry of Finance.
Li Wei, a senior analyst on the Chinese economy at Standard Chartered Bank, said that the stimulus measures were maintained due to "concerns about the global recovery and about what happens when the measures end."
"However, as China's recovery entrenches across sectors and inflation rises, we expect to see a gradual easing of stimulus measures," Li said.
But official statistics showed that on Sunday cooking oil prices rose by 6 to 15 percent in most of China. Reports indicate that the price of water, electricity and gas will also climb.
To maintain control of inflationary expectations, experts said China needs a more balanced stimulus package.
"An increasing financial deficit and government debt will aggravate inflation expectations," Su told China Daily.
Louis Kuijs, a senior World Bank economist, echoed Su's sentiments.
"It would be best for China's fiscal policy stance to not be too expansionary. Thus, it would be best not to see a large increase in the fiscal deficit. Given the uncertainties surrounding economic forecasts, I think flexibility is very important," Kuijs told China Daily.
China has seen a 7.5 percent increase in GDP during the first 10 months and is expected to fulfill the goal of 8 percent revenue growth this year. But tax cuts involving 550 billion yuan ($80.9 billion) adds more pressure on China's central financial balance sheet.
"Tax cuts on small- and medium-sized enterprises are essential but the government needs to seek appropriate timing to levy taxes," Su said. In the near future, China will not raise the personal income tax threshold, despite the urging of conference officials for the need to raise the income of residents.
"The government could do more in improving the health care system and deepening pension reform to boost domestic consumption," Su added.
