China sees $877b package also as stimulus to world economy

China sees $877b package also as stimulus to world economy

Premier Wen says top priority is to maintain stability, avoid volatility

By Tracy Quek, China Correspondent

CHINA’S 4 trillion yuan (S$877 billion) stimulus package will be a big boost not only at home but also for the global economy, Premier Wen Jiabao said yesterday.
A day after Beijing unveiled the massive package, he was quoted by Chinese media as saying: ‘We must implement the measures to ensure a fast and stable economic development.

‘They are not only for the needs of the development of ourselves, but also our biggest contribution to the world.’

News of China’s moves cheered stock markets yesterday, though questions remained about the details of the plans.

Mr Wen said the priority was to maintain economic stability and development and to avoid volatility.

Top of the agenda is to achieve ’steady and relatively fast’ economic growth and avoid ‘economic ups and downs’.

He said that the economic stimulus should be quick and decisive, and that it was important to speed up the construction of infrastructure and increase incomes to boost consumption.

At the same time, export growth must be maintained and there should be stable development of the property market, which is known to be a pillar of the country’s economy.

The Premier was confident that China could ward off the imminent global financial slump, according to a statement on the government’s website yesterday.

His comments come ahead of this weekend’s meeting in Washington where the leaders of 20 major economies will meet to discuss a response to the global financial crisis.

China is moving decisively, as growth fell to 9 per cent in the third quarter this year, its lowest level in five years. The financial crisis is affecting the global economy, with the United States, Europe and Japan battling to stave off recession.

Beijing said the money - with 100 billion yuan earmarked for this quarter alone - will be spent over the next two years mainly on infrastructure projects such as low-rent housing, basic rural infrastructure, roads and rail.

The government will also loosen credit rules to facilitate easier loans to businesses and ease corporate tax burdens.

The package has been touted as the biggest-ever stimulus plan undertaken by China, and the largest announced by any country so far.

The Shanghai market jumped 7.27 per cent. Asian investors welcomed the news, with Japan’s Nikkei ending 5.81 per cent higher. Hong Kong’s Hang Seng index rose 3.52 per cent.

Markets in Europe also rose, as did the Dow yesterday, surging 172.04 points (1.92 per cent) to 9,115.85 in opening trade.

Singapore’s benchmark Straits Times Index also rose 1.16 per cent to 1,885.02 points while shares of Singapore-listed Chinese firms and local companies with substantial operations in the country made bigger gains.

Positive sentiment aside, some questions remain.

‘It looks like a huge deal but the devil is in the details,’ said Beijing University Finance Professor Michael Pettis, who said it had to be new spending to really matter.

Experts noted that the 4 trillion yuan included programmes announced in recent weeks.

But the Associated Press quoted Asia regional economist Tim Condon of Dutch bank ING as saying that China has set the pace for expansionary policies elsewhere.

Its measures could boost demand for iron ore from Australia and Brazil, factory and construction equipment from the US and Europe and industrial components from throughout Asia.

‘Faster growth in China will be better for its neighbours. For every country in the region, it’s either their top trading partner or is on the way to becoming the top,’ Mr Condon said.

Globally, he added, ‘countries that supply capital equipment look like they will be the front-line beneficiaries of this package’.

Source : Straits Times - 11 Nov 2008

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