SHANGHAI, Dec 13 (Reuters) - China may increase its deficit to 3.5 percent next year in order to hit its economic growth target, the 21st Century Business Herald reported a senior think tank official saying on Tuesday.
If the government targets GDP growth of 6.5 percent next year, the deficit must increase by 0.5 percentage points to make up for tax reductions and to maintain government spending, Zhu Baoliang, chief economist at the State Information Center (SIC), said recently in an interview.
China's monetary policy cannot be loosened because of the expected increase in U.S. interest rates, Zhu added.
The comments follow the SIC saying on Monday that China should set an economic growth target of around 6.5 percent for 2017, although it is very likely that it will be able to exceed that level.
The government already looks set to meet its 6.5 to 7 percent target for 2016, due in part to higher government spending.
The State Information Center is an official think tank affiliated with the National Development and Reform Commission, a powerful economic planner.
In 2017, consumption will be weaker, Zhu said. This year, the rate of growth of income was lower than that of GDP, which will have an impact on consumption, he added.
In the short-term there is yuan depreciation pressure, but not in the long-term, Zhu said.
"I am a little worried about the outflow of capital, mainly how capital outflow will affect domestic monetary policy, which may bring short-term risks," said Zhu.
He added that the yuan has depreciated for two years and China's exports have not improved significantly due to weak economic growth and trade protectionism.
Reporting by Engen Tham and Wang Jing; Editing by Kim Coghill