China forecasts record budget deficit

The opening session of the Chinese People's Political Consultative Conference, which advises the NPC

(CNN) -- China's armed forces are set to get a budget boost of 17.6 percent this year and Beijing has recommended a record budget deficit of 309.8 billion yuan to ensure that the economy continues to grow at an annual rate of 7 percent.

The new budget is expected to be approved by the National People's Congress, which is opening at the Great Hall of the People on Tuesday.

The budget will be presented to close to 3,000 legislators by the Minister of Finance Xiang Huaicheng on Wednesday.

According to NPC deputies who have seen a copy of Xiang's financial report, Xiang is forecasting an expenditure of 2,101.2 billion yuan this year, with income of only 1,791.4 billion yuan.

Xiang will explain that the record deficit is necessary to stimulate domestic spending -- and to make up for possible lackluster performance in the export sector.

At the NPC, Premier Zhu Rongji is set to recommend that the economic growth rate be maintained at 7 percent.

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Since the late 1990s, Beijing has mainly relied on domestic spending, including building new infrastructure, to stimulate economic expansion.

Moreover, additional funds are needed to help cushion the impact of accession to the World Trade Organization.

For example, outlays on social security, including subsidies for the jobless, will also be at their record levels.

Both Zhu and Xiang will emphasize that the government will take extra measures to lessen risks associated with the record deficit.

Hi-tech uses

The Peoples Liberation Army (PLA) is due to be awarded a budget of 166 billion yuan, up 17.6 percent from last year.

The level of increase is similar to the 17.7 percent that the PLA got last year.

The PLA is expected to benefit from a mammoth budget boost at the NPC

The mammoth budget boost will mainly be used for hi-tech modernization and to improve the standard of living of the 2 million men in uniform.

Senior generals attending the NPC session have pointed out that China needs a stronger army to enable the country to better handle "an unpredictable international situation."

China's new PLA budget is the equivalent of 1.7 percent of last year's GDP. By contrast, the United States' just-published defense budget of US$379 billion is 5 percent of the American GDP.

However, Western military analysts have pointed out that the actual military expenditure in China is at least three times that of the publicized budget.

And funds for the development of several top-of-the-line weapons, including missiles, come from "hidden budgets" not included in the one tabled by Minister Xiang.

Xiang's budget will formally be approved by the NPC when it closes on the 15th.