New figures out last week showed that the pace of growth for China's fiscal revenues slowed sharply by almost 50 percent in 2012. Let's dig a little deeper today, and take a closer look at the country's fiscal position.

More public projects were in need of cash injections last year, which further widened the fiscal deficit of the world's second largest economy.

China's fiscal deficit reached a ten-year high of 850 billion yuan in 2012, breaching the government's target of 800 billion yuan.

The country's financial position has now been in the red for five years in a row.

A lagging fiscal income and higher government spending widened the deficit, with education, public housing and the pension system still in need of large cash injections.

However, experts say the slowdown of China's growth has also brought down the fiscal revenue.

Liu Shangxi, deputy director of Fiscal Science Research, Ministry of Finance, said, "We estimated that 9 percent of economic growth is a benchmark... A growth rate higher than that level will accelerate the fiscal income while a growth pace slower than that, like what China has right now, around 7 to 8 percent, will dampen the fiscal income growth to single-digit."

China's fiscal deficit equals 1.5 percent of its GDP, which, experts say, is still far away from the financial cordon of 3 percent in GDP, and the situation is much better than some of the developed economies.

But experts also note that a runaway fiscal deficit is one of the key factors that triggered the eurozone debt crisis, and that China has to learn from that.

Liu Shangxi said, "We have room to further widen our fiscal deficit thoughtfully. But we cannot simply say that the space is unlimited just because we have a much lower deficit than some Western economies. "

State-owned Bank of Communications estimate that China's fiscal budget deficit may hit a new high of 1.2 trillion yuan in the 2013 fiscal year to shore up the slowing economy.

The bank says an increasing deficit will go towards key infrastructure projects, which will benefit tax payers in return and make room for tax cuts, and as a result speed up the economic recovery.

Go to Forum >>0 Comment(s)