China due for fiscal tightening soon: Govt researcher

China should draw in loose fiscal policies before long and does not have room for big increases in state outlays on top of existing programmes, a senior government researcher said in comments published on Thursday.

But Jia Kang, head of the Chinese Ministry of Finance's Institute for Fiscal Science, also told the overseas edition of the official People's Daily that Beijing was likely to officially announce a shift in its fiscal settings only after the changes were firmly in place.

"Now in fiscal and monetary policy, the first is looser while the second is tighter, and the fiscal side should stay loose for a time, but not for very much longer," the Chinese-language newspaper cited Jia as saying.

With projects to improve poor people's housing, upgrade healthcare, increase education spending and strengthen rickety dams already on its books, the Chinese government did not have room for other big new spending initiatives, said Jia.

The People's Daily is the main newspaper of China's ruling Communist Party, and its overseas edition is a small-circulation offshoot that airs policy discussions more openly than the main, domestic edition.

The researcher Jia's comments do not amount to an official policy position, but their publication highlights the government's search for a policy recipe that will keep growth aloft while taming inflation.

China increased interest rates for a second time in just over two months late in 2010 to rein in inflation, which hit a 28-month high of 5.1% in the year to November.

The government would gradually phase out its 4 trillion yuan stimulus programme unveiled in November 2008, a Chinese business newspaper reported last month, citing unnamed official sources.

Jia suggested that a full shift in fiscal policies would take years, not months.

"At some time, active fiscal policies will phase out, but only some time after that will the transformation of fiscal policy be announced," said Jia.

"To judge from experience, this process is likely to take about three years from after 2011," he said.

The government would set a fiscal deficit of 900 billion yuan (USD 135 billion) in 2011, down from 1.05 trillion yuan in 2010, Gao Peiyong, an economist at the Chinese Academy of Social Sciences, a government institute in Beijing, said in the same report.