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March 12, 2009

China Can Add Stimulus as Needed

China’s industrial-production growth slowed in the first two months of the year as exports slid at a record pace.

Output rose 3.8 percent in January and February from a year earlier, slowing from a 5.7 percent increase in December, the statistics bureau said today. New lending quadrupled in February to 1.07 trillion yuan from a year earlier, the central bank said.

“The export engine has died: China is in a ‘help themselves’ mode, pump-priming like crazy to increase fixed- asset investment and keep retail spending going,” said Joseph Tan, chief Asian economist at Credit Suisse Private Bank in Singapore. “I think they’re going to pull it off.”

Premier Wen Jiabao is aiming to achieve 8 percent economic growth this year through tax cuts and spending on roads, railways and houses.

China’s construction equipment sales may jump 20 percent in the second half as orders recover on the government stimulus, Lonking Holdings Ltd., the nation’s biggest maker of four- wheeled earthmovers, said this week.

China’s vehicle sales surged 25 percent in February after the government cut taxes on some models. General Motors Corp. has raised its forecast for the auto industry’s sales growth in China this year to as much as 10 percent from less than 3 percent.

“To trigger a full-scale recovery, the government needs to add more stimulus measures to boost consumer spending and the property sector,” said Frank Gong, head of China research at JPMorgan in Hong Kong.






China has “adequate ammunition” to revive the world’s third-biggest economy and can add to its 4 trillion yuan ($585 billion) stimulus package at any time, Premier Wen Jiabao said.

“They may expand the stimulus further, but the government’s still got to assess the effectiveness of the announced package,” said David Cohen, an economist at Action Economics in Singapore. “The world’s cheering them on as one of our few hopes.”

“At any time, we can introduce new stimulus,” Wen said. “We have reserved adequate ammunition.”

The National People’s Congress approved today a record budget deficit for this year to revive growth as revenue-growth slows. The central government’s planned 1.18 trillion yuan contribution to the stimulus package announced in November will all be “new” spending, Wen said. Of that amount, 595 billion yuan will be spent this year, he said.

Stimulus figures don’t include 600 billion yuan of tax cuts and 850 billion yuan of health costs, he said.

“As long as the government’s stimulus measures to boost domestic consumption are properly implemented, investment growth will continue to accelerate, making up for the loss of exports,” Ma Jiantang, the head of the statistics bureau said in Beijing today.

Li Yizhong, the Minister of Industry and Information Technology, said today that output growth was set to recover.

Besides the slump in exports, the government faces rising unemployment, falling house prices and the risk of an increase in soured loans. About 11 million migrant workers remain unemployed after returning to China’s cities after a Lunar New Year holiday in January, the government said this week.


Forbes provides more information from Premier Wen.

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