BEIJING—China's finance ministry changed the accounting of some government spending in a way that enabled Beijing to announce a deficit below the symbolic level of 3% of gross domestic product for 2010, an examination of budget documents shows.
BEIJING—China's finance ministry changed the accounting of some government spending in a way that enabled Beijing to announce a deficit below the symbolic level of 3% of gross domestic product for 2010, an examination of budget documents shows.
In a news conference Sunday, Premier Wen Jiabao said he wanted reassurance from the U.S. that it would meet obligations to buyers of its debt. Mr. Wen also blamed the U.S. for depreciating its currency and pressing China to make its currency rise.
On Monday, a bipartisan group of 130 members of the U.S. House of Representatives, in a letter to the Obama administration, called for a broad effort to get Beijing to change its currency policy, including tariffs on Chinese imports if Beijing doesn't budge.
China's finances, according to official measures, remain healthier that those of the U.S. and many European nations, though Chinese officials are increasingly concerned about the hidden liabilities of local governments. China's finance ministry has pledged to keep annual budget deficits narrower than 3%, the same threshold countries in the euro zone are supposed to observe.
In a report to China's legislature this month, the ministry estimated the total budget deficit for 2010 at 2.8% of GDP, "basically the same as last year." A strict cash accounting of government expenditures, however, would widen the 2010 deficit to 3.5% of forecast GDP, and shrink the 2009 deficit to 2.2% of GDP, according to calculations by The Wall Street Journal that were verified by three economists.
Greece and other European countries have over the years used accounting maneuvers to meet their own 3% targets. In the run-up to the creation of the euro, France, Spain and Portugal made one-off changes to their budgets that allowed them to keep deficits below the 3% level for 1997. Subsequent revisions showed that the actual deficits for that year were above 3% of GDP for all three countries. Europe is now struggling with a crisis precipitated by Greece's failure to stick to that target.
It isn't clear why China's finance ministry is so attached to the 3% target. China has no obligation to keep its deficits below that level, and many foreign economists have urged the government to run bigger deficits. China also doesn't face pressure from global financial markets to run tight government finances, as its enormous pool of domestic savings means it has little need to borrow from abroad.
Beijing has frequently faced questions from investors and its own public over whether official data accurately represent the state of the world's fastest-growing major economy.
In a 2008 report by the International Budget Partnership on transparency in government finances, China scored 14 out of 100 points. India scored 60, and the U.S. scored 82. China provides "scant information" about its public finances, which "makes it very difficult for citizens to hold the government accountable for its management of the public's money," the group said.
The difference in the 2010 deficit accounting hinges on the treatment of 260.82 billion yuan ($38.16 billion) in local government spending that was "carried over" from 2009. According to the ministry's report, this money was allocated for projects in 2009 but wasn't spent. Though it will be spent in 2010, it is being counted in the 2009 budget.
In a written response to questions from the Journal, China's Ministry of Finance confirmed that the "carried over" money isn't included in its budget for spending in 2010.
It isn't uncommon to account for spending in the time period when the commitment to pay the money is made, as is the practice under the accrual accounting used by many businesses. But most governments, including China's, have historically practiced cash accounting, which counts revenue and spending only when the money changes hands.
Under those principles, to count all of the cash the government will actually spend in 2010 requires adding the "carried over" funds to the 8.453 trillion yuan in formal budgeted spending. That would increase the budgeted 1.05 trillion yuan deficit for 2010 by 260.82 billion yuan, pushing it to 3.5% of expected GDP from 2.8%.
China's budget deficit for 2010 could turn out to be lower, since it is based on the finance ministry's forecast of 8% in revenue growth, which is widely seen as very conservative. The ministry also budgeted for 8% revenue growth last year, and achieved an 11.7% gain.
