China's budget deficit target raised slightly to 2.1%

China will continue to keep a prudent monetary policy while inching up the budget deficit target slightly higher to 2.1 per cent from 2 per cent last year, Premier Li Keqiang said this morning at the opening of the annual session of the National People's Congress (NPC), China's Parliament.

Beijing is set to tighten credit this year to keep the financial system stable and ward off risks of defaults in the vast shadow banking sector, which comprise non-bank players such as trusts, wealth management products and underground lenders.

This follows a 10 trillion yuan stimulus lending binge by banks and other players during the 2008 global financial crisis. 

Fast credit growth persisted in subsequent years, sparking overheating in property prices and a burgeoning debt burden for local governments, whose splurging on stimulus projects drove up their total borrowings to nearly 18 trillion yuan last year. This figure does not include provincial governments' borrowings from the shadow banking sector.

Last year, Beijing had already sought to control credit, but its M2 broad money supply still grew 13.6 per cent from a year ago, slightly above the forecast of 13 per cent.

Mr Li said the credit increase last year was "well within the target range", adding that Beijing will strengthen macro-prudential management to "encourage an appropriate increase of monetary credit and nongovernmental financing" this year.

The forecast for broad money supply growth this year is again 13 per cent.

Meanwhile, the government budget deficit for 2014 could reach 1.35 trillion yuan (S$279 billion), up 150 billion yuan over last year.

Of this amount, 950 billion yuan would be borne by a central government deficit and another 400 billion yuan would come from bonds to be issued on behalf of the local governments.