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China Mulls Withdrawing Proactive Fiscal Policy

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China is considering gradually withdrawing its proactive fiscal policy but so far no timetable has been established, said Wang Jun, vice minister of finance, at the 2010 China Development Forum in Beijing Sunday.

"China's proactive fiscal policy was formulated according to the country's own situation, and the withdrawal will take place step by step in accordance with the country's conditions to ensure a stable transition," Wang made the remarks while delivering a speech at the forum.

The government announced a US$586-billion stimulus package in late 2008, which was designed to roll out in 2009 and this year.

With China's GDP growth reaching 8.7 percent year-on-year and new yuan loans amounting to 9.6 trillion yuan ($1.4 trillion) in 2009, investors are concerned the government may halt stimulus measures to avoid rising inflation and asset bubbles - especially in the wake of the two reserve requirement hikes this year.

The central government will further increase transfer payments to the local government to achieve balanced development among the country's different regions, said Wang.

The proportion of the central government's expenditure in the national budget has been on the decline in the past 10 years, while transfer payments to the local government have been on the rise, Wang added.

Transfer payments, part of the fiscal budget and redistribution of income, so far this year amounted to 3.06 trillion yuan, a year-on-year increase of seven percent, compared to the five-percent decrease of central government expenditure.

At present, the revenue ratio between the central and local governments is 53 yuan to 47 yuan (based on the benchmark of 100 yuan), while the expenditure ratio between the two is 23 yuan to 77 yuan.

(China Daily March 22, 2010)