China’s government is ready to unleash more stimulus spending this year if necessary to keep growth on track, following the release of summer data showing that the world’s second-largest economy is still losing steam.
Premier Wen Jiabao, addressing the World Economic Forum's Annual Meeting of the New Champions in Tianjin on Tuesday, assured his audience that China would meet its target of 7.5-per-cent GDP growth this year – but said his government also has a budget surplus this year of about one trillion yuan ($158-billion) and a special reserve fund of another 100 billion yuan, which they “will not hesitate to use for the fine-tuning of the economy.”
“We are fully confident we have the conditions and the abilities to overcome the challenges ahead,” Mr. Wen said, promising “pro-active” fiscal policy and “prudent” monetary policy – code words for more spending.
There are no promises of a 2008-style package that saw four trillion yuan pumped into the economy, though Mr. Wen defended the debts left behind by that package as necessary to avoid factory closings and job losses.
But China’s National Research and Development Commission is reported to have approved new infrastructure projects, including highways and airports, totalling between 800 billion and one trillion yuan over the next several years; though much of the spending had already been announced, it was a signal that the central government has taken China’s slowing growth seriously.
GDP growth was at 7.8 per cent after the first half of this year but China has seen exports and imports drop off along with industrial production, leading many economists to revise this year’s predictions downward.
There were few offerings for other world leaders; Mr. Wen made it clear China has its own challenges to manage and called only for more consultation.
“The international financial crisis has entered its fifth year, yet its underlying impact is still with us,” he said.
“It is all the more important for us to stick together to meet the difficulties head-on.”
Earlier in the day, the IMF’s deputy managing director, Zhu Min, told the forum that Asian exports can expect to be seriously hit by the eurozone crisis, which still has “some way to go” before recovery.
“We should not underestimate the negative impact from the European crisis to the whole world,” Mr. Zhu said. “When the growth in the euro area drops to zero, you will see export growth from this region drop to zero, too. This is very important.”
This was one of Mr. Wen’s last major speeches as Chinese Premier before a power transition expected to begin later this fall, and reflected some of his own legacy after 10 years of serving as the country’s second-most-powerful politician. He praised what he called the fastest-growing decade in the history of “New China” which has cut China’s population living in poverty by half.
But those achievements come amid a rising fear of social unrest, as indicators show the industrial sector cooling, inflation creeping up again and housing prices still high despite draconian purchasing controls on the over-inflated housing market.
The country’s senior leaders have also been preoccupied this year with the leadership transition. A micro-managed and completely opaque process at the best of times, it has been unexpectedly complicated after a political scandal engulfed former Chongqing governor Bo Xilai, previously thought to be destined for the governing Communist Party’s inner circle of power. The uncertainty has left no tolerance at the top for unrest caused by slowing growth and an accompanying rise in unemployment.
The forum opens after a weekend of difficult economic data in China; the consumer price index has crept up again to 2 per cent, exports crept up just 2.7 per cent and imports unexpectedly dropped 2.6 per cent, all signalling that China’s slowdown is still bottoming out.
But some strengthening may now be in sight, as higher bank lending numbers for August were met with sighs of relief in some quarters. Net bank lending was at 704 billion yuan ($111.75-billion U.S.) in August, up from 540 billion in July.
“This should relieve some fears that policymakers’ efforts to stimulate the economy are no longer effective,” wrote Brian Williams and Qinwei Wang at Capital Economics. “But any optimism should be tempered by the fact that borrowing by firms, as opposed to households, remains weak.”