Q: China began to adopt a proactive fiscal policy in
1998. After being implemented for seven years, the proactive fiscal
policy was changed to a prudent fiscal policy. What are the
differences between these two policies? What is the main purpose of
a prudent fiscal policy?
A: China adopted a proactive fiscal policy in 1998, mainly to
cope with the impact of the Asian financial crisis and to expand
domestic demand, giving impetus to economic growth. The policy
played a remarkable role in buffering the impact of the Asian
financial crisis, reducing pressure on the national economic
operations, and maintaining stability of social and economic
development.
However, since the second half of 2003, China's economy has been
gradually shifting from the downturn to a new round of expansion.
People have been paying increasing attention to the overheating
economy and increasing investments. In addition, fiscal risks have
been accumulating quickly. Except for a treasury bond of more than
2 trillion yuan (US$241.84 billion), deficit has exceeded 300
billion yuan (US$36.28 billion) for three consecutive years,
setting a new record since 1949 when the People's Republic of China
was founded.
Proactive fiscal policy is essentially an expansionary fiscal
policy, while prudent fiscal policy is a neutral fiscal policy.
Neutral fiscal policy should prevent symptoms of inflation from
expanding while avoiding the reemergence of a deflationary trend,
control the swelling of investment demand while expanding
consumption demand, and tighten sectors with overheating investment
while supporting the weak links of economic and social
development.
It's the right time for the proactive fiscal policy to be
replaced by a prudent fiscal policy, which is also in accordance
with development changes of China's current economic situation and
the objective requirements of macro-control.
The main purpose of prudent fiscal policy is to control the
deficit, adjust structure, promote reform, increase revenue and
reduce expenditures.
To control the deficit is to properly reduce the fiscal deficit
and cut the issuing scale of long-term treasury bonds for
construction. To adjust structure is to emphasize the restructuring
of fiscal expenditures and the directed use of treasury bonds,
according to the requirements of public finance and the scientific
development concept.
To promote reform means to change the mode of economic growth
mainly fueled by investment in projects funded by treasury bonds;
continue arranging treasury bonds to invest in projects while
integrating investment in capital construction within the budget,
according to the principle of being based on the present situation
and keeping the future in view; on the basis of ensuring a certain
investment scale of the central budget, properly reduce the
investment scale of treasury bonds and release some financial
resources to promote system and institutional innovation; create a
relatively relaxed financial and taxation environment for market
entity and economic development; and establish a long-lasting
mechanism in favor of economic self-growth.
To increase revenue and reduce expenditures is to collect taxes
in strict accordance with the law to ensure the steady growth of
fiscal revenue, and to strictly control the increase of
expenditures and raise the efficacy of the use of fiscal funds in
earnest, on the basis of maintaining the general level of tax
burden or slightly reducing the tax burden.
During Spring Festival in 2005, many
Beijing households have their meals in restaurants. Booming
domestic demand reflects people's confidence in national
economy.