The U.S. isn’t the only nation with a budget problem. First there is all of Europe. And now there is China.
Granted, China is a different animal all together.The government is control there, not the private sector. It has strict capital controls. It can sweep problems under rugs faster and easier than in the West. But, China watchers do share concern that China is outspending itself.
This is the base case of the old hard landing theory. I say “old” because most big investment firms with a footing in China — Barclays, Nomura, HSBC — have never considered a hard landing case in China.
Hard landing aside, China’s budget deficit is going to expand this year as the government’s increased expenditure and tax reform measures will reduce tax revenues to Beijing, Jia Kang, head of the Ministry of Finance’s Research Institute for Fiscal Science, said at an economic meeting over the weekend.
Jia said that China’s budget deficit of GDP will increase to about 2 percent in 2013 from the targeted 1.5 percent in 2012.
He did not disclose the volume of this year’s budget deficit but said it will be bigger than the targeted 800 billion yuan ($127 billion) in 2012, the China Daily reports.
Beijing has been boosting spending in infrastructure construction to support economic growth.
Liu Yuhui, chief economist with Huatai Securities, told the Daily that adding to the deficit through government spending was actually a sound, market-oriented move.
He added the additional fiscal expenditure could be used to eliminate overcapacity in some industries, reduce debt in the long-term and improve labor allocation as China’s economy restructures away from an export-driven economy to a more domestic-focused one.
“In the short term, these expenditures are necessary, and will be beneficial for economic transformation, laying the foundation for more fiscal (tax) income and a lower deficit in the future,” he told the paper.
Last month, China’s foreign exchange regulator, the State Administration of Foreign Exchange, revised the current account surplus to $70.8 billion from the previous $70.6 billion.
Commodity trade registered a surplus of $102.9 billion, while service trade saw a deficit of $29.7 billion. The net inflow of foreign direct investment was $38.5 billion. International reserve assets added $62.4 billion in the first three quarters last year.
China has money flowing in, despite its deficit. China investors are liking the country a lot more this year.
The iShares FTSE China (FXI) exchange traded fund is up 2.8 percent since the start of the year, beating the MSCI Emerging Markets index.
FXI has also outperformed the MSCI EM after a rough start to 2012. The main China broad-based ETF is up 18.4 percent in the last 12 months while the iShares MSCI Emerging Markets (EEM) is up 17.6 percent in the same period.
forbes.com
Granted, China is a different animal all together.The government is control there, not the private sector. It has strict capital controls. It can sweep problems under rugs faster and easier than in the West. But, China watchers do share concern that China is outspending itself.
This is the base case of the old hard landing theory. I say “old” because most big investment firms with a footing in China — Barclays, Nomura, HSBC — have never considered a hard landing case in China.
Hard landing aside, China’s budget deficit is going to expand this year as the government’s increased expenditure and tax reform measures will reduce tax revenues to Beijing, Jia Kang, head of the Ministry of Finance’s Research Institute for Fiscal Science, said at an economic meeting over the weekend.
Jia said that China’s budget deficit of GDP will increase to about 2 percent in 2013 from the targeted 1.5 percent in 2012.
He did not disclose the volume of this year’s budget deficit but said it will be bigger than the targeted 800 billion yuan ($127 billion) in 2012, the China Daily reports.
Beijing has been boosting spending in infrastructure construction to support economic growth.
Liu Yuhui, chief economist with Huatai Securities, told the Daily that adding to the deficit through government spending was actually a sound, market-oriented move.
He added the additional fiscal expenditure could be used to eliminate overcapacity in some industries, reduce debt in the long-term and improve labor allocation as China’s economy restructures away from an export-driven economy to a more domestic-focused one.
“In the short term, these expenditures are necessary, and will be beneficial for economic transformation, laying the foundation for more fiscal (tax) income and a lower deficit in the future,” he told the paper.
Last month, China’s foreign exchange regulator, the State Administration of Foreign Exchange, revised the current account surplus to $70.8 billion from the previous $70.6 billion.
Commodity trade registered a surplus of $102.9 billion, while service trade saw a deficit of $29.7 billion. The net inflow of foreign direct investment was $38.5 billion. International reserve assets added $62.4 billion in the first three quarters last year.
China has money flowing in, despite its deficit. China investors are liking the country a lot more this year.
The iShares FTSE China (FXI) exchange traded fund is up 2.8 percent since the start of the year, beating the MSCI Emerging Markets index.
FXI has also outperformed the MSCI EM after a rough start to 2012. The main China broad-based ETF is up 18.4 percent in the last 12 months while the iShares MSCI Emerging Markets (EEM) is up 17.6 percent in the same period.
forbes.com
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