According to Jia, China's fiscal deficit has been kept at a low level thanks to fiscal revenue from previous years.

To make up for the reduction in income and the growing disparity between revenue and expenditures, the government could expand the fiscal deficit and issue more bonds, he said.

The 2009 central budget plan passed by the National People's Congress on March 13 prescribed a national fiscal expenditure of 7.6 trillion yuan ($1.1 trillion), which will lead to a fiscal deficit of 950 billion yuan ($140 billion) for this year. The deficit proportion will be kept to within 3 percent of the GDP. It is the highest deficit since the founding of the People's Republic of China in 1949. Last year, China's fiscal deficit was a mild 111 billion yuan ($16 billion).

Despite this, the Central Government's investment in public facility construction has been on the rise. This year, expenditures for agriculture, rural areas and farmers will increase 20 percent year on year; expenditures for social security and employment will rise 22 percent; and expenditures for public health and sanitation will surge nearly 40 percent. The investment growth in these sectors outpaces the expected GDP and fiscal income growth.

Jia said the aggressive fiscal policy, which features in vigorously expanding government expenditures and cutting taxes for individuals and companies, is the most direct and effective way to boost domestic consumption and maintain steady and relatively fast economic development.

In the short term, those measures will put a heavy pressure on fiscal balance. But in the long run, explosive government investment will give rise to private investment, Jia said. With active investment from private investors and better company performance, consumption could pick up, which would eventually lead to sound national economic development and ultimately benefit national fiscal revenue.

In addition to efforts to spur investment, the government is working hard to rein in its own expenses. On March 18, the Ministry of Finance and the National Audit Office jointly issued a notice, requiring government departments at all levels to slash their expenses on outbound business travel by 20 percent this year. They also must cut the money they spend on vehicle purchases and maintenance by 15 percent. Spending on business receptions must be cut by 10 percent.

Increase the deficit when necessary

On March 27, the Xinjiang Uygur Autonomous Region held an auction for 3 billion yuan ($440 million) worth of local government bonds-the first of its kind in China. In the meantime, the Ministry of Finance is encouraging other provincial and regional governments to do the same. More local bond issues are expected in the coming months, with Sichuan Province offering up to 18 billion yuan ($2.6 billion) in bonds, followed by Guangdong Province with 11 billion yuan ($1.6 billion) in bonds.

Beijing can issue up to 5.6 billion yuan ($820 million) in bonds, while Hebei Province gets 6 billion yuan ($878 million); Anhui Province, 4 billion yuan ($586 million); Yunnan Province, 8.4 billion yuan ($1.2 billion); Guangxi Zhuang Autonomous Region, 6.5 billion yuan ($950 million); Shaanxi Province, 6 billion yuan ($878 million); Ningxia Hui Autonomous Region, 3 billion yuan ($440 million); Guizhou Province, 6.4 billion yuan ($937 million); and Liaoning Province, 6.6 billion yuan ($966 million).

A research report issued by the National Bureau of Statistics on March 27 about the economic performance in January and February noted that although China had adopted a series of measures to adjust its economic growth, the domestic economy had a tough time due to the worsening international economic and financial situation. Whether government investment would entice more private investment remained an open question, it said.

The report also said the government would further expand the deficit at any time necessary, although many people have expressed concern over national economic security, which could be dampened by an excessive fiscal deficit.

Li Xiaochao, spokesman of the National Bureau of Statistics, said the 950-billion-yuan (140 billion) fiscal deficit would touch the threshold of 3 percent of GDP. But in cases of extreme conditions, it would be acceptable for the fiscal deficit in certain years to exceed 3 percent of the GDP.

A fiscal deficit higher than 3 percent does not necessarily mean the economy is in danger. It is normal when an economy is facing stiff headwinds. In 2003 and 2004, the central fiscal deficits of the United Kingdom, France and the United States all exceeded 3 percent of their GDPs. The fiscal deficit of Egypt rose to 6.2 percent of its GDP in 2005.

"The small volume of national debt, high social savings rate and fast economic growth guarantee our national economic security," Li said. "Therefore, we can take into consideration further fiscal expenditure expansion to boost domestic demand."