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China will budget a fiscal deficit of 3 per cent of gross domestic product for 2016 to ensure a “reasonable range” of growth in a year that is expected to see

more economic challenges.

The 2016 budget deficit, 2.18 trillion yuan (HK$2.6 trillion), is a 560 billion yuan increase from last year, according to the Ministry of Finance in its work plan unveiled on Saturday at the country’s annual parliamentary meetings.

Last year’s actual fiscal deficit was 2.4 per cent of GDP.

READ MORE: 5 big numbers we’re waiting for that will define China’s political and economic situation

This year’s proposed GDP target was set at 6.5 to 7 per cent, the report stated.

The range target – as opposed to a specific numerical target – reflects Beijing’s dilemma between pursuing between economic growth and pushing ahead with reforms.

Last year, China targeted a growth of “about 7 per cent” when actual GDP growth slowed to 6.9 per cent – the lowest in a quarter of a century.

Economic growth required stronger policies, the report said.

Fiscal policy is expected to take the lead this year, with the debt-to-GDP ratio projected at 3 per cent, an increase from last year’s budgeted 2.3 per cent.

Economists estimate that actual debt-to-GDP ratio rose to 3.5 per cent in 2015.

Consumer price index was set at 3 per cent, compared with the actual rise of 1.4 per cent in 2015.

Expenditure on public security, or to maintain social stability, was expected to rise 5.3 per cent at about 167 billion yuan, compared with last year’s budgeted rise of 4.3 per cent, or 154.2 billion yuan, according to the finance ministry’s work plan.

Defence spending was budgeted to rise 7.6 per cent to 954 billion yuan, down from the 10.1 per cent increase budgeted last year.

READ MORE: China’s military budget boost the lowest in six years

The government was also expected to create more than 10 million urban jobs this year, compared with 2015’s target of at least 10 million.

This year’s urban registered unemployment ratio was projected to top 4.5 per cent, against the actual 4.05 per cent reported by the Ministry of Human Resources and Social Security.

Among other proposed indicator targets, M2, which measures money supply, was expected to rise 13 per cent, compared with last year’s targeted 12 per cent and the actual growth of 13.3 per cent.

The government did not propose a specific trade growth target this year.

Trade marked the worst performance in 2015 when exports and imports combined fell 7 per cent in renminbi terms and dropped 8 per cent in dollar terms – the target last year was 6 per cent growth.

In his annual work report, Premier Li Keqiang said China aimed to keep the yuan generally stable on a “reasonable and balanced level” and to control “abnormal flow [of cross-border capital effectively” this year.

READ MORE: Ambitious GDP targets will still dictate Chinese policy, no matter what the cost

Li also pledged to further reform the country’s financial market and liberalise interest rate.

The National Development and Reform Commission said it expected fixed-asset investment to rise about 10.5 per cent this year.

Non-financial foreign direct investment in China would reach US$128 billion this year, it said, while non-financial outward direct investment was expected to increase 10 per cent to US$130 billion.

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