No big changes in China's 2017 fiscal policy

The Ministry of Finance expects the general government deficit to come in at around 2.6 trillion yuan this year, slightly over 3 % of 2017 GDP. Last year's government budget report foresaw a similar sized deficit, but actual spending was higher and the deficit ultimately amounted to nearly 4 % of GDP. This year's budget report contains an exceptional amount of references to the status of president and party chairman Xi Jinping, as well as various political frameworks and programmes.

As in previous years, the government's budget report did not address how much and where public assets would be allocated this year. Of the spending categories, it is known only that military spending will continue to grow briskly (up 7 %), reaching a level of 1.04 trillion yuan or 1.3 % of GDP this year. However, the report does mention some concrete measures. For example, several official fees charged to firms will be eliminated or cut, taxation of small business will be reduced and small and medium-sized firms will able to deduct a larger share of R&D spending from their taxes.

China's public sector finances remain murky overall. This is because regional and local administrations have extensive off-budget activities. When revenues, expenditures and financing are reported in a more conventional way the general government budget deficits are considerably larger. The IMF estimates that the so-called augmented public sector deficit has been running at around 10 % of GDP since 2013.

Public sector revenues, spending and deficits, % of GDP

Sources: IMF and China's budget reports for 2016 and 2017.