Tag Archives: deficit

China Turns Down U.S. Currency War Offer It Was Always Going To Refuse

As this Bystander expected, prospects for the G-20 calling a truce in the currency wars seem remote. Reuters news agency is reporting that China, India and Germany are rejecting out of hand a U.S. proposal to set numerical targets for trade surpluses and deficits at the G-20 finance ministers meeting in Seoul this weekend.

The American proposal would put far too much flesh for the taste of the surplus nations on the bone of a mom-and-apple-pie agreement among the G20 a year ago that big surplus countries like China would aim to shift growth away from being export led while the big deficit economies like the U.S. would seek to boost domestic savings. We expect the communiqué to be issued after this weekend’s meeting will be long on good intentions but short on any agreed measures — let alone commitments — to make good on them, not the ideal preparation for the G-20 leaders’ summit next month.

This post was first published on Market Bystander.

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China Swings Into Deficit

The surge in government spending late last year to counter the economy’s slowdown has swung China into deficit for the full year.

Finance ministry preliminary data published February 1 showed that central and local governments entered December with a combined surplus of 1.2 trillion yuan ($175 billion) but ended the month with a deficit of 110 billion yuan.

The ministry said spending was up 30% in December on the same month a year ago, at 1.7 trillion yuan, though there was no breakdown of where the extra spending went. Meanwhile, revenue fell due to lower corporate profit tax payments and a range of tax cuts and rebates.

For 2008 as a whole, government spending rose 25.4% to 6.2 trillion yuan, while revenue increased 19.5% to 6.1 trillion yuan.  China ran a surplus the previous year equivalent to 0.7% of GDP.

At 0.4% of GDP, the 2008 deficit is no great burden and still leaves plenty of scope for more pubic stimulus spending and/or tax cuts. With the government warning that 2009 looks like being the toughest year for the economy since 2000, both are likely.

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