By Bloomberg News
June 29 (Bloomberg) -- China’s economic growth may slip next year as the government refrains from adding to stimulus spending amid political opposition to a rising fiscal deficit, said Deutsche Bank AG.
“A lot of people believe the government can do whatever it takes to stimulate the economy,” Ma Jun, Deutsche’s Hong Kong- based China economist, said in a June 26 interview. “Those expecting big stimulus next year, and therefore stronger growth, will be disappointed.”
The Shanghai Composite Index has climbed 61 percent this year, the third-best performer of 90 benchmarks tracked by Bloomberg, as the government’s stimulus plan takes effect. Economic growth will cool to 7.2 percent next year from 7.5 percent in 2009 as increasing overcapacity in manufacturing discourages private investment, Ma estimates.
Government-influenced spending will account for four-fifths of China’s growth this year, according to the World Bank. Premier Wen Jiabao’s 4 trillion yuan ($585 billion) stimulus package, announced last year and running through 2010, is countering a collapse in exports.
Ma’s view contrasts with predictions from the World Bank, the Organization for Economic Cooperation and Development, and JPMorgan Chase & Co. for growth to accelerate in 2010 from 2009. Gross domestic product will increase 8 percent this year and more than 9 percent in 2011, Cheng Siwei, former vice chairman of the standing committee of the National People’s Congress, said June 27.
Record Fiscal Deficit
China budgeted for a record fiscal deficit of 950 billion yuan, or almost 3 percent of GDP, in the year through March 31, 2010, on falling revenue and increased spending. The World Bank predicts that the gap will be 4.9 percent and Ma sees a shortfall as high as 5 percent.
While China’s deficit as a proportion of GDP will be dwarfed by those of nations including the U.S. and the U.K., Communist Party policy makers may become concerned that it’s not sustainable, Ma said.
“A 5 percent deficit was unthinkable to most officials just a few months ago,” Ma said. “Further stimulus requiring spending above the 5 percent level will likely be strongly resisted on concerns about fiscal sustainability.”
Finance Minister Xie Xuren said June 24 that meeting 2009 budget targets will be “arduous” as slower growth and lower corporate profits sap revenue, the state-run Xinhua News Agency reported, citing comments to the legislature.
Consumer Spending
China Resources Enterprise Ltd., the retailer whose venture with SABMiller Plc makes China’s best-selling beer, reported a 35 percent decline in first-quarter profit as slowing economic growth curbed consumer spending.
The government’s fiscal income fell 6.7 percent in the first five months from a year earlier.
Around the world, fiscal deficits may this year reach 12.2 percent in the U.S., 12.5 percent in the U.K. and 4.2 percent in Germany, as nations spend to revive growth, according to the median estimates of economists surveyed by Bloomberg News.
China’s fiscal strength includes the world’s largest foreign currency reserves and outstanding government debt of only 20 percent of GDP, versus 87 percent in India, according to the International Monetary Fund. In addition, the nation’s gross domestic product is still growing as economies from the U.S. to Japan contract.
To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net
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