China unveils budget plans

SHANGHAI / Reuters

China’s Ministry of Finance unveiled details of its 2016 budget plans on Wednesday, with spending jacked up sharply on many items, including an 11-fold increase for “repairs” to 94 billion yuan ($14.54 billion).
Other big increases have been made for health care and family planning, which will get a 47.2 percent boost to 12.43 billion yuan. Spending on software gets 4,000 percent-plus increase, albeit from a low base.
China has expanded access to basic medical services since a plan for universal health care was announced in 2009, but the country still ranked 95th globally in health expenditure per capita in 2013, according to the most recent World Bank data.
Spending on rural health centres will double in 2016, and the budget for government medical insurance will increase nearly five-fold.
Funds earmarked for combating air pollution, part of the budget for environmental protection, will rise 400 percent, good news for firms trying to tap into providing such services and clean energy.
As economic growth slows, the government is looking to soften the blow from millions of expected layoffs by increasing funding for social security and employment by 22.8 percent to 88.6 billion yuan.

DEFENCE SPENDING
Employment subsidies will be increased by 45.8 percent. It is possible that the rise in spending on repairs could drive temporary demand for laid-off workers as well.
China’s financial regulators will also get more money as they struggle to restore confidence in battered domestic stock markets. The budget allocates a 93 percent rise in spending to 78.1 billion yuan for unspecified administrative and regulatory expenses.
The final budget called for defence spending to rise 7.6 percent to 954.3 billion yuan, in line with previous announcements.
Total fiscal revenue in 2016 is expected to increase 2.2 percent, the slowest growth in years. Fiscal revenue rose 5.8 percent in 2015, missing the target of 7 percent.
While tax income should rise 3 percent, revenue derived from profits at state-owned companies is expected to fall 9.6 percent in 2016 after last year’s 6.7 percent decline. Revenue from a tax on auto sales is forecast to fall 8.3 percent after the government introduced a tax subsidy for the purchase of energy-saving vehicles in April 2015.
According to the budget, outstanding local government debt is expected to reach 10.7 trillion yuan by the end of 2016, or 780 billion yuan higher than the end of 2015.

S&P lowers China outlook to negative
Beijing / AFP

Ratings agency Standard & Poor’s (S&P) cut its outlook on China from stable to negative on Thursday, warning that economic rebalancing was taking longer than expected.
“The economic and financial risks to the Chinese government’s creditworthiness are gradually increasing,” it said in a statement.
S&P kept its rating on Chinese sovereign bonds unchanged at AA-/A-1+.
Beijing is grappling with a tough economic transition away from dependence on heavy industries toward a consumer-driven model, but fluctuations in the exchange rate and stock markets have undermined confidence in leaders’ willingness to push through reforms.
S&P said that it could downgrade Chinese government bonds this year or next if Beijing tries to keep economic growth at 6.5 percent by opening the credit floodgates and pushing investment to above 40 percent of GDP.
This would be “well above what we believe to be sustainable levels of 30%-35% of GDP and among the highest ratios of rated sovereigns”, which it said would weaken the economy’s resilience to shocks.
The US-based agency also said its downgrade was motivated by its view that much-needed reforms to hulking, inefficient state-owned enterprises may be “insufficient” to reduce the risks of credit-fuelled growth.
It projected the economy would expand at 6 percent or more over the next three years, but projected that government debt would rise to 43 percent of GDP. But it said ratings could stabilise if Beijing takes measures to cool credit growth so that it is more in line with nominal GDP.