Investors welcomed China‘s multibillion dollar stimulus package but analysts said Monday that Beijing must ensure companies get access to more credit to sustain its effectiveness.
A man walks past buildings on the city skyline in Shanghai, China, Tuesday Oct. 21, 2008. In the foreground is the Shanghai World Financial Center, and at left the Jinmao Tower. China’s economy expanded by just 9 percent in the third quarter, its most sluggish pace in five years.(AP Photo/Greg Baker)
Stock markets in Japan, Hong Kong and mainland China soared following Sunday’s announcement of the 4 trillion yuan, or $586 billion, package as China joined moves by governments around the world to cushion the blow of the global slowdown.
By JOE McDONALD, AP Business Writer
The package calls for higher government spending on roads, airports and other infrastructure and bigger subsidies to the poor and farmers. It promises more lending for rural projects, smaller companies and consumers but gives no details.
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.
“It is clear that aggressive fiscal stimulus is necessary to jump start the economy at a time of sharply deteriorating outlook and sentiment,” said UBS Securities economist Tao Wang in a report to clients.
Still, “given the importance of bank financing in China … increasing bank lending would be critical to sustain corporate investment needs,” he said.
The plan follows an unexpectedly sharp slowdown in economic growth that has raised the prospect of job losses and unrest. China’s economic growth fell to 9 percent in the third 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.
British Prime Minister Gordon Brown welcomed China’s move and said he looked forward to discussion of coordinating policy at a Washington meeting this week of leaders from the Group of 20 major economies. Chinese President Hu Jintao is due to attend.
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.