China to spur growth via fiscal stimulus in 2012: Goldman

As Beijing commits itself to increase domestic consumption in the wake of slowing Western demand for its exports, analysts at Goldman Sachs say Chinese authorities will pursue a more "proactive" fiscal than monetary policy to stimulate the economy.

According to a report published by the investment bank on Tuesday, the Chinese government's fiscal revenues in 2012 are expected to exceed budget estimates. That will put more money in the government`s hand to spend on projects that will support consumption, in turn giving a boost to the retail, consumer goods and energy sectors. The report says, "Fiscal revenues will likely beat the budget by around Yuan 500 billion (USD 79.3 billion)." It also states that historically expenditure has exceeded budget estimates each year together with revenues. "Executing a more proactive fiscal policy is a core part of China`s 2012 economic agenda," the report says. "With low fiscal deficit as part of gross domestic product (GDP) in 2011 and low government debt as part of GDP, we believe China has ample fiscal flexibility." According to the report, the government`s 2012 fiscal deficit target is 2% of GDP, up from 1% in 2011 indicating higher potential to spend on spurring a slowing economy. During the last financial crisis in 2008-2009 China announced a USD 586 billion stimulus plan to reignite its economy. In 2012, the government is expected to spend on education, social housing, healthcare, and social security, says the report. This is in line with the Ministry of Finance priorities, which is to channel fiscal expenditure towards urbanization, transportation, rural projects and supporting small and midsized enterprises. "The only way to be able to move from an export-led economy to a consumption-led economy is to increase wages, improve healthcare and education," Uwe Parpart, Managing Director of Reorient Financial Markets told CNBC. "So people don`t have to save that much and can spend the money rather than worry about having to put away these huge amounts of money for 20-30 years." The beneficiaries of increased government spending this year, according to Parpart will be the retail and consumer goods sectors. He also sees the energy and infrastructure sectors as benefiting from the stimulus. According to the Goldman Sachs report, the mass market consumption sector will benefit with the bank`s top picks including sports goods company Li Ning, China Eastern Airlines, Dongfeng Motor, apparel manufacturers and distributors Daphne International Holdings and Bosideng International. Its picks in the energy sector include China Coal Energy , China Resources Cement Holdings and China National Building Material. Copyright 2011 cnbc.com