China's fiscal policy to help avoid sharp slowdown: Minister

BEIJING (REUTERS) - China must implement an expansionary fiscal policy this year to help prevent a sharp slowdown in the economy, Finance Minister Lou Jiwei said on Friday.

China's economy faces pressures from a weak global recovery and domestic constraints, including the need to cut debt levels gradually, Lou told a news conference during the annual meeting of the National People's Congress (NPC), the country's parliament.

"To withstand the downward pressures, we must adopt an appropriately expansionary fiscal policy," Lou said. "We have to steadily deleverage, but must also prevent the economy from falling off a cliff."

The government has raised its budget deficit to 1.62 trillion yuan (S$354 billion), or around 2.3 per cent of GDP, compared with 2.1 per cent last year and the widest since 2009, when Beijing unleashed a stimulus splurge in response to the global financial crisis.

But Lou said on Friday that the actual budget deficit would be around 2.7 per cent of GDP this year, after incorporating government budget calculation reforms that are being implemented this year.

Chinese leaders have ruled out big stimulus measures as China is still struggling to deal with a mountain of local government debt, the hangover from 4 trillion yuan in spending rolled out during the height of the global crisis.

Local governments will repay more than 100 billion yuan in debt this year, Lou said.

The minister is forging ahead with fiscal reforms in a bid to deal with the root cause of local government debt piles that have amounted to more than US$3 trillion (S$4.1 trillion).