China's Budget for 2011

By Xi Si
Published: 2011-01-06

News, Cover, Issue 501, January 4
Translated by Tang Xiangyang
Original article:

The Chinese central government plans to spend 9.79 trillion yuan in 2011, 1.3 trillion yuan more than it spent in 2010. The central government also estimates that it will be able to collect 8.89 trillion yuan over the year, which will result in an annual deficit of 900 billion yuan. .

In 2010, government spending was 8.9 trillion yuan while the original budget was only 8.4 trillion yuan.

New government expenditures to be announced in 2011 includes the lifting of a healthcare subsidy paid to rural and urban residents from the current 120 yuan per capita to 200 yuan.

"In Inner Mongolia, when the government only provided a 120 yuan subsidy, the upper limit of local residents' medical expenditures covered by the healthcare insurance system was 20,000 yuan, but now, the limit may be raised to 30,000 yuan," an Inner Mongolia resident said.

The government spending growth rate in 2011 will be higher than the growth rate of fiscal revenue. As China increases its spending on social security policies, the government must manage a tighter budget.

5 Major Welfare Expenses

Liao Xiaojun, Vice Minister of the Ministry of Finance, said in 2011, China will invest more into five sectors: education, rural and urban basic health insurance, healthcare institutions, social security, policy-based housing and water conservation facilities.

The education sector will receive the biggest investment. In 2009, the Chinese government invested 1.2 trillion yuan in education. By 2012, China plans to invest 4 percent of its GDP in education.

Shanxi Province has decided to add an annual investment of 12 billion yuan to its local education system.

"Government investment will not just be on paper, it will be used for services such as school buses and security guard recruitment," a finance official said.

Currently, around one billion rural and urban residents are covered by China's basic healthcare insurance, totaling 200 billion yuan in government expenses. In 2011, this spending will increase by 80 billion, and the central government will be responsible for transferring 14 billion yuan to local governments.

"Shandong Province will spend three billion yuan extra on local healthcare insurance. 80 percent of the new spending increase required of western provinces and 60 percent of central provinces will be covered by central government subsidies," said a finance official.

The central government will also raise the subsidy for public health services, such as vaccinations and disease prevention, from 15 yuan to 25 yuan per capita, creating a total investment of around 32.5 billion yuan and a year on year increase of 13 billion.

Beginning in 2009, China planned to invest 850 billion yuan into its healthcare system over three years. In 2011, its total healthcare investment will be around 400 billion yuan. Currently, China's government spending in the healthcare sector accounts for less than 2 percent of its GDP. In many countries, this ratio is around 17 percent.

According to preliminary plans, China will raise the basic pension of enterprise retirees by 140 yuan per month per capita and expand the coverage of basic rural old age insurance from 10 percent of all Chinese counties to 40 percent. Additionally, the minimum cost of living subsidy provided for rural and urban residents will also be raised.

The National Development and Reform Commission (NDRC) has made plans to construct ten million policy-based houses in 2011. Henan Province has estimated that it will invest 30 billion yuan in constructing policy-based houses.

25 percent of central government spending will be invested in sectors pertaining to agriculture and rural development, especially into water conservancy projects.

Despite increased investment in social security related sectors, the Ministry of Finance has indicated that there will be no increases in central ministry overheads and has pledged to continue spending reductions on overseas trips, business receptions and cars for officials. According to the budget for 2011, 70 percent more central fiscal revenue will be transferred to local governments.

The target growth rate for China's fiscal revenue in 2011 is still set at 8 percent, which means that the total yearly revenue will be around 8.89 trillion yuan. The growth rate for 2010 was 18.1 percent. The reduced growth rate will be a consequence of the projected tax cuts. Individuals with low or mid-level income will be required to pay less personal income tax. The value-added tax (VAT) will replace the business tax.

Too Many Mouths, Not Enough Cake

Despite increasing fiscal revenue, local governments are still suffering from inadequate finances.

In 2011, the central government will transfer 3.4 trillion yuan to local governments, but local treasuries will be hoping for additional funds.

The Ministry of Finance has made it clear that, be it the central government or its local subsidiaries, surplus revenue will either be put into new, legally acceptable, projects and will not be spent on projects already in progress. But generally, surplus funds will be transferred to next year's budget.

However, a local official has expressed a difference in opinion. He said, without legal restrictions, the ministry's requirements are not binding. It has been learned that the revised version of the Budget Law states that extra revenue must not be used the year it is collected. But, since the revised version is still not approved by the NPC, this policy will not be effective in the near future.

This article was edited by Rose Scobie and Ruoji Tang