China Needs More Pump-Priming to Achieve 8% GDP Growth
SHANGHAI (ICIS news)--China, the world’s third largest economy, will need more than yuan (CNY)4,000bn ($585bn) to achieve its “ambitious” target of growing at an 8% pace this year while the rest of the world is in recession, economists said on Thursday.
Premier Wen Jiabao, addressing the annual session of the National People’s Congress, admitted that China is “facing unprecedented difficulties and challenges” but the economy should still grow at 8%, helped by increased government spending.
"As long as we adopt the right policies and appropriate measures and implement them effectively, we will be able to achieve this target," said Wen at the opening of the second session of the 11th National People's Congress (NPC).
The pump-priming effort will raise the country's national budget deficit to a record CNY950bn but Wen stopped short of announcing an increase to the CNY4,000bn fiscal stimulus package announced in November 2008.
“8% maybe is a little ambitious. China is the second largest exporter in the world, next to Germany. There is no avoiding the drag from the sharp decline in exports demand,” said David Cohen, chief economist at consultancy Action Economics.
China's major trading partners - the US and Europe - are in the throes of possibly the worst recession to hit in years.
“We are seeing 6% (GDP growth) for China, but this is still higher than the rest of the world,” said Cohen.
Standard and Chartered Bank was quoted in the media as projecting that China may double the current fiscal stimulus package through to 2010.
“There is no problem about the target that China’s economy will expand at 8% if the government continues to pour in investment,” Shanghai Securities economist Li Jianfeng said in Mandarin.
“If necessary, the government will increase spending from CNY4,000bn although it will incur high fiscal deficit,” Li said.
Premier Wen had said that China’s budget deficit will be the highest to be recorded in six decades, which should cushion the impact of the global financial crisis on the domestic economy.
This year’s projected budget deficit will be nearly triple the size of its biggest deficit on record in 2003 at CNY319.8bn.
“The government must provide more investment in infrastructure such as construction of roads, bridges and airports to drive the economy out of the bottom valley,” Li Hongrong, an analyst from Shenzhen-based Ping An Securities, said in Mandarin.
In the first two months of the year, China’s State Council had enumerated ten industries, including the petrochemical sector, that will get financial support under the fiscal stimulus package.
Promoting exports, which had driven China’s rapid economic expansion in the past, is also among the government’s priorities, said Wen.
A central government fund for trade development will be increased, eyeing to cultivate brand-name export products and support small and medium-sized enterprises in expanding their international markets, he added.
China’s exports shrank for the second consecutive month in December.
While there were some encouraging signs in China’s manufacturing activities based on Purchasing Managers Index (PMI) numbers in January and February, economists were not convinced that the economy will turn any time soon.
The PMI readings rose in the past two months but remained below 50, still indicating shrinking industrial activities.
“It was encouraging that it (PMI) picked up a bit in February at 49%, its highest reading since September 2008. Maybe they are getting some impact from higher fiscal spending and the more accommodative (monetary) policy,” said Action Economics’ Cohen.
“I think they are committed to using fiscal stimulus to boost growth (so that) at least the momentum in domestic demand can help (China) achieve at least a 6.0% growth. It is something of a recession for sure but China will still hold up,” he said.
Premier Wen Jiabao, addressing the annual session of the National People’s Congress, admitted that China is “facing unprecedented difficulties and challenges” but the economy should still grow at 8%, helped by increased government spending.
"As long as we adopt the right policies and appropriate measures and implement them effectively, we will be able to achieve this target," said Wen at the opening of the second session of the 11th National People's Congress (NPC).
The pump-priming effort will raise the country's national budget deficit to a record CNY950bn but Wen stopped short of announcing an increase to the CNY4,000bn fiscal stimulus package announced in November 2008.
“8% maybe is a little ambitious. China is the second largest exporter in the world, next to Germany. There is no avoiding the drag from the sharp decline in exports demand,” said David Cohen, chief economist at consultancy Action Economics.
China's major trading partners - the US and Europe - are in the throes of possibly the worst recession to hit in years.
“We are seeing 6% (GDP growth) for China, but this is still higher than the rest of the world,” said Cohen.
Standard and Chartered Bank was quoted in the media as projecting that China may double the current fiscal stimulus package through to 2010.
“There is no problem about the target that China’s economy will expand at 8% if the government continues to pour in investment,” Shanghai Securities economist Li Jianfeng said in Mandarin.
“If necessary, the government will increase spending from CNY4,000bn although it will incur high fiscal deficit,” Li said.
Premier Wen had said that China’s budget deficit will be the highest to be recorded in six decades, which should cushion the impact of the global financial crisis on the domestic economy.
This year’s projected budget deficit will be nearly triple the size of its biggest deficit on record in 2003 at CNY319.8bn.
“The government must provide more investment in infrastructure such as construction of roads, bridges and airports to drive the economy out of the bottom valley,” Li Hongrong, an analyst from Shenzhen-based Ping An Securities, said in Mandarin.
In the first two months of the year, China’s State Council had enumerated ten industries, including the petrochemical sector, that will get financial support under the fiscal stimulus package.
Promoting exports, which had driven China’s rapid economic expansion in the past, is also among the government’s priorities, said Wen.
A central government fund for trade development will be increased, eyeing to cultivate brand-name export products and support small and medium-sized enterprises in expanding their international markets, he added.
China’s exports shrank for the second consecutive month in December.
While there were some encouraging signs in China’s manufacturing activities based on Purchasing Managers Index (PMI) numbers in January and February, economists were not convinced that the economy will turn any time soon.
The PMI readings rose in the past two months but remained below 50, still indicating shrinking industrial activities.
“It was encouraging that it (PMI) picked up a bit in February at 49%, its highest reading since September 2008. Maybe they are getting some impact from higher fiscal spending and the more accommodative (monetary) policy,” said Action Economics’ Cohen.
“I think they are committed to using fiscal stimulus to boost growth (so that) at least the momentum in domestic demand can help (China) achieve at least a 6.0% growth. It is something of a recession for sure but China will still hold up,” he said.
quoted from: www.ICIS.com
