China will stick to its loose fiscal policy for at least three years despite a growing budget deficit, a government economist said in comments published on Wednesday.
Even by conservative estimates, the timeframe for this round of proactive fiscal policy should cover at least three years, Gao Peiyong, a researcher with the Chinese Academy of Social Sciences, wrote in the People's Daily, the ruling Communist Party's mouthpiece.
Gao said China's economic recovery was not yet on a solid footing, so an early end to the stimulus now coming from tax cuts and massive fiscal spending could lead to a new downturn.
It is both necessary and urgent to seek stable economic development at the cost of fiscal imbalance, Gao said. It is inevitable that China's fiscal situation will run into difficulties in the not-too-distant future.
But Huang Yiping, a professor at Beijing University and former chief Asia economist at Citigroup, argued that the government needed to adjust its fiscal policies to prevent the economy from becoming too reliant on public investment.
The government should be more cautious in approving new projects in the coming months, as the investment rush could sow the seeds of an increase in bad bank loans and could also crowd out private sector investment, Huang said at a forum.
Beijing wants to keep its budget deficit to within 3 percent of GDP this year, a target that economists say will be tough to hit given current spending and revenue trends. The deficit in 2008 was about 0.5 percent of GDP.
China is implementing a $585 billion stimulus package, announced last November, to help the world's third-largest economy overcome the global economic slump.
(Reporting by Zhou Xin, Aileen Wang and Alan Wheatley; Editing by Andy Bruce)