China Is Said to Plan First Budget Deficit Target Cut Since 2012

(Bloomberg) -- China plans to reduce its annual budget-deficit target to just under 3 percent of total economic output, people familiar with the matter said.

The target will be set at 2.9 percent, said one of the people, who asked not to be identified as the information isn't public. The target, which was set at 3 percent in the past two years and hasn't been cut since 2012, is subject to approval at the annual National People's Congress opening on March 5.

Top Communist Party officials said after their Central Economic Work Conference in December that they will maintain a proactive fiscal policy, repeating language from the prior year's statement. At the same time, the People's Bank of China has been gradually tightening money-market conditions while the government intensifies efforts to slow credit growth and defuse risks in the financial system.

"This isn't quite a tightening, as the size of China's GDP has kept growing, and a 0.1 percentage point reduction won't necessarily bring down actual spending," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. "I don't see it as a shift in the policy stance, but it could be related to the deleveraging campaign and the leadership's focus on reining in financial risk, especially about local government debt."

The Finance Ministry didn't respond to a fax seeking comment on the issue Tuesday.

"The news is a blessing to the bond market, and it helped lift the gains for China's government bond futures in afternoon trading," said Li Qilin, chief macroeconomic researcher at Lianxun Securities Co.

10-year sovereign bond futures climbed more than 0.4 percent to close at the highest level since Jan. 9. China Development Bank notes due August 2027 advanced for a fourth day.

--With assistance from Xiaoqing Pi

To contact Bloomberg News staff for this story: Jing Zhao in Beijing at jzhao231@bloomberg.net, Yinan Zhao in Beijing at yzhao300@bloomberg.net, Miao Han in Beijing at mhan22@bloomberg.net.

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Jeff Kearns

©2018 Bloomberg L.P.

With assistance from Jing Zhao, Yinan Zhao, Miao Han