China's finance chief said the nation may be running into fiscal difficulties after the gap between spending and revenue widened once again.

Fiscal revenue grew a year-on-year 3.4 percent to 380.78 billion yuan (US$45.8 billion) during the first quarter of the year, Finance Minister Xiang Huaicheng said yesterday.

But fiscal expenditure rose 23.9 percent to 351.135 billion yuan (US$42.3 billion) during the same period, Xiang said at a press conference held by the Information Office of the State Council.

The fiscal situation appears particularly bleak as the country is implementing a proactive fiscal policy.

Last month, the National People's Congress approved a budget deficit of 309.8 billion yuan (US$37.3 billion) for the year and a special bond issuance of 150 billion yuan (US$18.1 billion) for 2002 to help attain 7 percent economic growth.

"We have to work very hard to increase fiscal revenue, while reducing unnecessary spending and guaranteeing expenditure on key areas such as social security, environmental protection and agriculture," Xiang said.

He expressed confidence that China's fiscal revenue will improve from this month.

"I am confident that fiscal revenue will increase by 10 percent this year," he said. "A 10 percent revenue increase will help achieve the 7 percent growth target of gross domestic product (GDP) this year."

In the first quarter of this year, China's GDP grew a year-on-year 7.6 percent, he said.

The government was forced to step in to initiate a proactive fiscal policy in 1998, when the Asian financial crisis began to impose negative effects on the country's economy, Xiang said.

China's exports grew 0.5 percent in 1998 compared with more than 20 percent in 1997 and the country's economic development soon began to lose speed and deflation appeared.

The proactive fiscal policy proved to be the backbone that helped the country withstand the Asian financial turmoil and stand firmly against the world economic downturn, Xiang said.

Figures from the National Bureau of Statistics indicate that proactive policy contributed 1.5 percentage points to the GDP growth in 1998, 2 percentage points in 1999, 1.7 percentage points in 2000 and 1.8 percentage points in 2001.

"Every coin has two sides," he said. "The proactive fiscal policy also meant a lot of pressure for us."

The ratio of China's fiscal deficit to GDP rose from less than 1 percent in 1997 to 2.7 percent last year. The outstanding amount of debts rose from about 300 billion yuan (US$36.1 billion) in 1997 to about 1,600 billion yuan (US$192.7 billion) last year.

But China will have to continue the proactive fiscal policy this year, because some new changes have occurred in the US economy which will impact upon the nation, Xiang said.

(China Daily April 17, 2002)