G.F. 326
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6
department. Moreover, interest rate on bonds must not be set more than 40% above the prevailing bank interest rate.
9.
Information regarding the state fiscal position in 1986 has been made public recently. Following a balanced budget in 1985, China incurred a fiscal deficit
of Rmb 7.08 billion (US$2.06 billion) in 1986. The
worsening in the state financial position last year was probably partly attributable to the fall in profits of state enterprises, resulting in less than expected tax revenue from this sector. On the expenditure side,
wasteful expenses on non-productive items put additional strains on the fiscal resources. Another worrying feature of the 1986 budget was that price subsidies and subsidies to compensate for losses made by enterprises increased substantially and together accounted for 1/4 of total government expenditure. Given the present concern about inflation expressed by both the government and the public,
both types of subsidies are not expected to be reduced in
the short run. These subsidies, together with other
committed spending, led the Chinese government to propose a deficit of Rmb 8.02 billion (US$2.16 billion) for 1987,
equivalent to about 1% of its national income. The budget
deficit would have been even greater, if the government
had not planned increased foreign borrowings to finance
its expenditure
The true deficit is thus higher
than that announced.
(5)
•
(5)
In the 1987 budget, foreign borrowings are to increase to Rmb 14.6 billion (US$3.9 billion), from Rmb 7.67 billion (US$2.2 billion) in
1986. of this Rmb 14.6 billion, Rmb
3.2 billion is to be used as payment for foreign equipment needed by the second stage. of Baoshan iron and steel complex.
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