December 27, 2011 / 1:52 AM / 6 years ago

China's fiscal deficit to fall in 2012: source

SHANGHAI (Reuters) - China’s central government will run a smaller fiscal deficit in 2012, according to a report by local media.

Fiscal outlays will increase 11 percent to 11.1 trillion yuan ($1.75 trillion) in 2012, against a revenue increase of 9 percent, according an unnamed finance ministry source cited by the Shanghai Securities Journal.

The figures, which emerged at the conclusion of the national Ministry of Finance Work Meeting on Monday, imply a 2012 fiscal deficit of 800 billion yuan, down 50 billion yuan from the expected 2011 deficit, the paper calculated.

A smaller deficit would disappoint those hoping for robust stimulus by the government to support growth. Industrial production slowed to its slowest pace in four years in November.

Concerns about slowing growth prompted policymakers to lower the required reserve ratio for banks on December 5, but analysts believe authorities have limited space for additional monetary stimulus, given the flood of bank lending that resulted from the previous round in 2008-10.

The relatively healthy state of China’s public finances raised hopes that China would use fiscal spending to support the economy in 2012.

For 2011, China’s full-year fiscal revenue is on pace to reach 10.2 trillion yuan, a 22 percent increase over 2010, the source said, while spending will reach 11 trillion yuan, an increase of 20 percent.

Of next year’s 800 billion yuan deficit, the central government’s share will be 550 billion yuan, a decrease of 150 billion yuan, while the local government share will be 250 billion yuan, an increase of 50 billion yuan.

Local government spending will be fueled by an increase in direct bond issuance by local governments, the source said. ($1 = 6.3364 yuan)

Reporting by Gabriel Wildau; Editing by Jonathan Hopfner

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