News Room - Business/Economics

Posted on 30 Nov 2009

China pledges stable economic policy for next year

Chinese leaders pledged Friday to stick to stimulus spending and easy credit to support growth next year, making clear their unease about the stability of China's nascent recovery from the global crisis.

 

Ending a closely watched annual planning meeting, the Communist Party leadership gave no sign it planned an early exit from the stimulus despite a recent upturn in growth. But it said stimulus efforts will shift emphasis from state-led investment to encouraging more consumer spending and private investment.

 

"The message the report is meant to send is that the central government is still not completely relieved about the domestic and international situation," said Lu Zhengwei, chief economist for Industrial Bank in Shanghai.

 

In a statement carried by state media, party leaders promised to "continue a proactive fiscal policy and a moderately easy monetary policy" — a reference to Beijing's 4 trillion yuan ($586 billion) stimulus and lavish bank lending.

 

Lu said the credit pledge will surprise observers who expected a more neutral stance following forecasts that China faced little threat of a second downturn after third-quarter growth rebounded to 8.9 percent over a year earlier.

 

Some analysts have suggested major economies such as China should start to consider when to withdraw stimulus. But the managing director of the International Monetary Fund, Dominique Strauss-Kahn, warned last week during a visit to Beijing that a global recovery was uneven and said it was essential to "keep supportive measures in place."

 

The annual planning meeting, usually held in December, was moved up to November in a possible move to quiet uncertainty about the direction of government policy.

 

Chinese leaders have tried to reassure the public and encourage consumers and companies to spend by pointing to improvements in factory output and other indicators while also warning against complacency.

 

The stimulus is pumping money into the economy through higher outlays on building airports and other public works. Private companies that provide most of China's economic growth and new jobs were left behind as spending went to state-owned construction companies and suppliers of steel and cement, though money has begun to flow to the private sector as they pay wages and buy raw materials.

 

Chinese regulators have expressed concern about the scale of bank lending and ordered institutions this week to avoid a surge in credit. Lending rose to more than 1 trillion yuan ($135 billion) a month earlier in the year as institutions were ordered to support stimulus projects but has tapered off since July.

 

Friday's announcement stressed the need to boost consumer spending and to encourage private investment. Authorities promised earlier that the government would do more to help entrepreneurs in the second year of the stimulus.

 

"The direction is to transfer from government-led investment gradually to society-led investment," said chief economist Rock Jin at Sinolink Securities in Shanghai.

 

The plan also promised to promote new and high-technology industries and to improve health and education, though it gave no details.

 

"The wording overall has left a lot of room for reinterpretation and flexibility," said economist Zuo Xiaolei at Beijing's Galaxy Securities. "The government probably is going to come out with new policies such as tax reductions, because private investment accounts for half the economic landscape."