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China says stimulus plan important for world
2008-11-10
BEIJING - China's massive stimulus package is meant to help support global growth by boosting Chinese investment and consumer spending, Premier Wen Jiabao said Monday. "We must implement the measures to ensure a fast and stable economic development," Wen, the country's top economic official, said at a meeting of government leaders, according to a report read out on the state television evening news. "They are not only the needs of the development of ourselves, but also our biggest contribution to the world." Stock markets in Japan, Hong Kong and mainland China soared after Sunday's announcement of the 4 trillion yuan, or $586 billion, package as Beijing joined moves by governments around the world to cushion the blow of the global slowdown. The plan calls for higher spending on roads, airports and other infrastructure, tax deductions for exporters and more aid to the poor and farmers. Spending on health and education will increase, as well as on environmental protection and high technology. Wen said China must increase investment and consumer spending, maintain export growth, enhance corporate competitiveness, reform financial industries and improve the health development of the real estate industry, according to the state television report. It gave no other details. China's announcement came as economic officials from the Group of 20 leading economies, which includes major wealthy and developing nations, called Sunday for increased government spending to boost the troubled global economy. At a meeting in Brazil, G20 finance ministers and central bank governors also said emerging economies deserve a prominent role in talks to overhaul the world financial system. China's move follows an unexpectedly sharp downturn in economic growth that has raised the prospect of job losses and unrest. Exporters say orders have fallen sharply, leading to an increase in factory closures and layoffs. Chinese economic growth fell to 9 percent in the latest quarter, its lowest level in five years, and analysts expect export growth to fall as low as zero in coming months as global demand weakens. The plan represents another drastic step away from lending curbs and other anti-inflation measures that Beijing imposed over the past three years but has been rolling back since mid-2008 as government alarm about slowing economic growth mounts. Economists noted that the plan depends on corporate investment and promises bank lending for rural projects, smaller companies and consumers. "I don't believe a fiscal stimulus alone is enough to keep growth going. I see it as the jump-starting of a car. Corporate investment and bank lending are the fuel that will be necessary to keep it going," said UBS Securities economist Tao Wang. Beijing might supply one-quarter of the announced spending, or 1 trillion yuan ($145 billion), with the rest coming from increased investment by Chinese state companies, bank lending or bond sales by local authorities for individual projects, said Ting Lu, a Merrill Lynch economist. "Many state companies have a lot of cash. They just need to use it," Lu said. News of the plan sparked rallies on many Asian markets, with the Shanghai Composite index -- which has plunged by two-thirds since it peaked last October -- jumping 7.3 percent to 1,874.80. Japan's Nikkei 225 index surged 5.8 percent to 9,081.43. It also lifted sagging oil prices on hopes that it would stimulate energy demand. Oil rose $2.69 to $63.70 a barrel in Asian trading on the New York Mercantile exchange. Also Monday, the government said China's wholesale inflation eased in October, which gives authorities more leeway to stimulate the economy without the threat that they might ignite new price rises. Producer prices rose 6.6 percent in October from the year-earlier period, down from August's 12-year high of 10.1 percent. Alarmed at falling growth, the government switched its official goal in mid-2008 from a single focus on fighting inflation to a dual target of ensuring fast economic expansion while also containing price rises. It has cut interest rates three times in recent weeks and lifted limits on how much each Chinese bank can lend. The government's announcement appears to exaggerate the size of its plan by including projects already under way, including reconstruction from the devastating May earthquake in China's southwest, said Sherman Chan, an economist for Moody's Economy.com. "The exaggeration highlights the government's desperation to revive sentiment, which is perhaps the key factor to sustaining growth amid global turmoil," Chan said in a report. The promise of more social spending represents an expansion of efforts in recent years to spread China's new prosperity to the countryside and urban poor -- an effort that some dubbed China's "New Deal" after programs launched by U.S. President Franklin D. Roosevelt during the Great Depression of the 1930s. "Higher social welfare spending and rural reforms will help boost consumption," said a report by Jing Ulrich, JP Morgan & Co.'s chairwoman for China equities.
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