Whether China should control its fiscal deficit rate at 3% or increase it to 4%, or even 5% has become the focus of economists at the Caijing Annual Conference in Beijing, The Paper reported.

Gao Peiyong, vice-president of the Chinese Academy of Social Sciences, thinks the government must be highly vigilant with the deficit level, locking it to 3% of GDP.

As it is a necessary tool to control fiscal and financial risks, Gao says it also directly affects social expectations.

However, Yao Yudong, former director of the Institute of Finance under the People’s Bank of China, suggests that the deficit rate should be increased to 4%.

Currently, small and medium-sized banks have insufficient collateral to apply for the medium-term lending facility (MLF), so liquidity released by the central bank has failed to impact the real economy.

On the other hand, a 4% fiscal deficit rate is reasonable and can mitigate the risk of collateral shortage, Yao explained.

Ren Zeping, dean of Evergrande Economic Research Institute, agreed with Yao on breaking the 3% deficit rate, warning that if the government tries to maintain a fiscal balance while the economy is facing increased downward pressure, how can companies survive.

In 2018, the Chinese government’s fiscal deficit rate was 2.6%, less than the 3% in 2017.