Military spending boost to deepen China's deficit

March 27, 1991|By Robert Benjamin | Robert Benjamin,Beijing Bureau of The Sun

BEIJING -- China, its national budget already awash in a record amount of red ink, plans this year to increase its military spending and largely stick by its huge subsidies to sinking state enterprises in a costly effort to maintain political stability.

The net effect of these political decisions, announced yesterday during the annual meeting of China's powerless legislature, probably means unprecedented deficit spending for a nation struggling to extricate itself from an economic morass while keeping a lid on unemployment, inflation, social unrest and perceived threats from anti-socialist elements abroad.

China's economy these days is plagued by sluggish retail markets; an inefficient, increasingly idle work force; badly managed state industries; an irrational tax-collection system that starves the central government; the threat of a return to double-digit inflation; and financially draining subsidies to floundering companies and to inordinately low-priced basic goods.

Even such good economic news as last year's record grain harvest has increased the financial pressure on China's central government by creating a need to build grain storage facilities for the largess.

"We are faced with an extremely grim situation," Wang Bingqian, China's finance minister, said yesterday in presenting a draft of the nation's 1991 budget to the National People's Congress, which can be counted upon to approve it with little dissent.

"Failure to successfully fulfill the state budget would produce a very unfortunate impact on continued political and economic stability," he said, underscoring the fears of China's hard-line leadership that mounting economic problems could set the stage for the return of the chaos of the 1989 pro-democracy protests here.

Despite the projected budget deficit, China's military is in line this year for a 12 percent increase.

After suffering through the 1980s with a declining share of China's national budget, the military is due its second consecutive annual increase. The military's budget jumped 15.5 percent last year in a move widely perceived as a reward for cracking down on the 1989 unrest.

This year's budget increase is believed to be driven by the technological wizardry of the Persian Gulf war, which deeply impressed upon the Chinese military the need for more modern weaponry.

Despite long-range plans to lessen China's subsidies for money-losing enterprises and for consumer prices, budgeted figures for these items this year are not much below last year's levels -- again, in an apparent effort to quell the potential for political instability.

China has run national budget deficits for the last five years.

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