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= UPDATE: China Spends More, But Rebalancing Focus In '06
(Comtex Finance Via Thomson Dialog NewsEdge)BEIJING, Mar 05, 2006 (Dow Jones Commodities News Select via Comtex) --(Compiles details from reports presented at Congress; adds analyst's comment)
China's government indicated Sunday it is spending more this year, but focusing its outlays on improving its rural sector and correcting imbalances from breakneck investment that still can threaten economic growth.
In three major government reports issued at the opening of the annual session of the National People's Congress, Beijing outlined broad policy aimed to curb investment, control credit, encourage domestic consumption and shrink the budget deficit - but still direct resources to supporting farmers, the environment and energy savings.
As expected, the government didn't offer fresh policy on foreign exchange. But Premier Wen Jiabao reasserted China's intent to improve its foreign exchange regime and maintain basic stability of the yuan at an appropriate and balanced level.
The government's economic targets for 2006 signaled that it remains committed to carrying out "prudent" monetary and fiscal policies, a stance first adopted last year after seven years of "proactive" guidance that led to an average annual economic expansion of 10% in the past three years.
For 2006, Beijing said it's targeting a gross domestic product growth of around 8% this year, decelerating from the 9.9% recorded in 2005. It is also targeting a national fixed asset investment growth of 18%, signaling a slowdown from last year's 25.7%.
Retail sales are expected to stay relatively steady with a growth of 12% for this year, while the consumer price index is targeted to rise within 3% this year, compared to 1.8% last year.
The registered urban unemployment rate is expected to stay within 4.6%, with the creation of 9 million new jobs. At the end of last year China's urban jobless rate was 4.2%.
"The pressure on resources and the environment is mounting, the economy is still hampered by a number of shortages, and there are still some unstable factors and uncertainties in development," the government's top economic planner, the National Development and Reform Commission, said in its report. "It would therefore be inappropriate to set a higher (GDP) growth rate."
The central government's budget deficit this year is expected to fall to 1.5% of GDP, from 1.6% last year.
According to the Ministry of Finance's draft 2006 budget report, China's budget deficit is expected to narrow to CNY295 billion this year, from an actual fiscal deficit of CNY299.96 billion in 2005.
This year, the fiscal revenue of the central government is expected to total CNY1.927 trillion, up 11.7% from a year ago, while fiscal expenditures should reach CNY2.22 trillion, up 9.7%. On a nationwide basis, revenue this year is projected to reach CNY3.542 trillion, up 12% from a year ago, and nationwide expenditures are projected to rise 13.8% to CNY3.837 trillion.
Supporting Laggard Areas
This year, the government plans to spend CNY339.7 billion from the central government budget on the agricultural and rural sector, up 14.2% from the CNY297.5 billion spent in 2005. Meanwhile infrastructure investment is expected to total CNY115.4 billion, unchanged from last year.
"The government looks more confident both in how they manage the economy and its outlook," said Goldman Sachs economist Hong Liang in Hong Kong. She said the economic blueprint for 2006 focuses on rationalizing expenditure patterns by making the pie bigger, and supporting laggard areas.
Chinese policy makers have been rallying all levels of government to focus on quality growth, rather than the growth at any cost. China's headlong growth has brought bottlenecks in energy and transportation; environmental degradation; oversupply in industries like steel, copper and aluminum; and widening gaps between the rich and poor.
Last year, the average income of rural residents grew 6.2% in real terms, compared with a rise of 9.6% for urban residents. This year, the NDRC is targeting a real growth of 6% for per capita disposable income of urban residents and 5% for per capita net income of rural residents.
The NDRC urged local governments to "avoid recklessly pursuing and competing for the highest growth rate, and put the main thrust of their effort into improving the quality and benefits of economic growth."
Wen, in his annual Work Report, elaborated on the government's concerns by saying Beijing would aim to prevent "breakneck" growth in investment, which is still too rapid, and maintain appropriate growth in money supply as part of moves to prevent large swings in economic development.
The central government plans to issue CNY60 billion of long-term treasury bonds this year, which would be CNY20 billion less than in 2005, and increase regular construction investment from the central government budget by CNY10 billion.
The reports didn't give a total issuance amount expected for government bonds in 2006. The Finance Ministry said last year total treasury issuance by the central government was CNY702.29 billion, which included CNY10 billion issued for local governments.
Proceeds from government bond issues and budgetary investment will be mainly used to maintain adequate funding for key projects already underway and major new projects aimed at developing agriculture, energy and environmental conservation, social services and China's western regions, Wen said.
Wen said starting this year, the government will appropriate over CNY103 billion annually "to ensure the normal operation of town and township governments and meet the needs of rural compulsory education."
The NPC, China's largely rubber-stamp legislature, will deliberate on the government's reports during the annual session, which lasts through Mar. 14.
-By China Bureau, Dow Jones Newswires; 8610 6588-5848; jr.wu@dowjones.com
(END) Dow Jones Newswires
03-05-06 0224ET
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