Concerns over why the central government should be spending so much and whether it will cast a shadow over China’s fiscal security flashed immediately across headlines in media at home and abroad.

“The seemingly abrupt increase of the deficit is, to a considerable extent, a result of how the budget has been planned instead of a pure consequence of actual economic operations, for example, big expenditures,” Lin Zhiyuan, a research fellow at the Research Institute under the State Development Planning Commission, was quoted as saying by the Beijing-based China Youth Daily.

Rather than being counted into the total government spending, the government debt has traditionally been figured into a separate account. As a result, changes such as the repay of principal and the resulting interest do not show themselves in the annual government fiscal report.

When all this payment has to be -- in accordance with the international practice -- wrapped into the same account with all government spending, the total fiscal number will of course shoot up a lot, Lin said.

The general level of total national debt has been piling up since 1998, which was at first to cushion the possible impact upon Chinese economy as an aftermath of the Asian financial turmoil in 1996-97, which saw the collapse of economies in most east and southeast Asian countries.

But afterwards, the government borrowed more and more money mainly to stimulate the domestic buying mood and provide a little stimulation to a lukewarm economy starting since 1996.

But where has the money gone and what has it brought to China’s 1.3 billion population?

The No.1 expenditure goes to the effort to build up a stronger social security network, said the newspaper.

According to the financial minister, about 98.2 billion yuan (US$11.8 billion), or 5.18 times of that in 1998, has been allocated to the social security payment, of which 34.9 billion yuan (US$4.2 billion) went to pensioners, 31 billion yuan (US$3.7 billion) to the National Social Security Fund, 13.6 billion yuan (US$1.6 billion) to laid-off workers at state firms. By the end of last year, 470 billion people have benefited from these expenditures, according to the newspaper.

Moreover, the heating-up of investment in public infrastructure and salary raises for government servants also took a considerable part of the government’s money.

For ordinary citizens, however, they’ve witnessed longer rail systems and longer and broader highways, they are better off in their every day lives and the over 7 percent growth rate of the gross domestic product (GDP) has been highly-praised by both domestic and foreign media.

But can the central government repay all this borrowing when it is due?

"I don’t doubt the government’s capacity in paying back its debt, although its general level has already gone over 3 percent, a widely-recognized alarm benchmark," Wu Jinlian, one of the most respected Chinese economists and also a member of the China People’s Political Consultative Conference, was quoted as saying.

He is referring to a ratio between the budget deficit and the GDP, a popular yardstick for measuring the acceptable degree of government debt. Another similarly popular measurement is the ratio between the government’s debt in surplus and the GDP.

Despite that the first ratio might have reached the alarm line, the second is still far below the internationally-recognized security level.

"I don’t think such a percentage (of 3 percent) will bring us any risk," Gao Shangquan, a CPPCC member and the president of the Research Institute of China’s Economic Reform, was quoted as saying. "What’s really worthy of our attention is how we could ensure the efficiency of government spending."

For the time being, the key issue of government spending lies in increasing the transparency of governments at different levels and working out better expenditure plans, Lin said to the newspaper.

Governments must pay much more attention to choosing investment projects correctly to avoid half-finished projects, said Gao to the newspaper.

Half-finished investment projects have been widely criticized as one of the major reasons for funneling out government money.

The central government obviously has set an eye on this.

"All money within the budget will be carefully planned so that every penny will go where it’s needed the most," the financial minister promised the legislators.

(china.org.cn March 13, 2002)