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.