BEIJING – China's new finance minister said on Sunday it was unclear whether the Euro zone would solve its debt problems over the next decade and suggested further turmoil would complicate efforts to reduce Beijing's fiscal deficits.
Lou Jiwei said external difficulties might oblige China to run deficits for longer than anticipated as government expenditure was rising quickly and revenue growing only at a single-digit pace.
"I am really very worried about Europe. I am worried about whether it can get out of trouble in the next 10 years," Lou said in an address to an economic forum.
"Our fiscal expenditure is growing very quickly while I estimate fiscal revenue will only post single-digit growth rates in future ... we are facing substantive domestic pressures."
"When the external environment improves, we hope we can get back to fiscal balance after conducting reforms for several years."
Lou made his remarks as Cypriot President Nicos Anastasiades traveled to Brussels to discuss a European Union bailout and a reprieve from financial meltdown. Turmoil in Cyprus's banking system has further dented investor confidence in the currency zone.
Previously the chief executive at China's $482 billion sovereign wealth fund China Investment Corp , Lou - who took office this month - said Beijing's increased spending to offset weak demand abroad was widening the fiscal deficit.
China has budgeted a fiscal deficit of about 2 percent of gross domestic product (GDP) for 2013, up from 1.6 percent of GDP in 2012, but low by international standards. Latest data showed Greece ran a fiscal deficit of 9.4 percent in 2011.
To counter a domestic downturn that was the worst in 13 years last year, China accelerated infrastructure spending and cut taxes for some small- medium-sized companies.
Rapid building of infrastructure between 2009 and 2010 to drive the economy saddled local governments with a huge debt that continues to grow, a problem Lou said he wanted to correct, without elaborating.
"First, we should take some measures to stop the trend of growing local government debt," he said. "Then, we can study what kind of system could point us to the correct path that prevents governments from crooked ways."
Local governments pay for the bulk of state spending but have only modest revenues. Many borrow through off-balance sheet financing despite a strict clampdown by Beijing.
The government has promised to change the fiscal system to better balance local governments' funding and spending needs, though Lou made no mention of possible reforms.
Different Chinese agencies have published varying figures for the level of outstanding local government debt. The state auditor was quoted by media as saying total debt rose to around 15-18 trillion yuan ($2.42-$2.9 trillion) in March this year.
(Reporting by Shao Xiaoyi and Koh Gui Qing; Editing by Ron Popeski)