China's government announced plans today for an estimated $585 billion in spending and stimulus measures to shore up its weakening economy and counter the effects of the global financial crisis.
The massive stimulus plan would include tax cuts, a loosening of credit and government spending on a wide range of projects, including construction of low-income housing, transportation systems and the development of rural infrastructure, the official new China News Agency said.
Analysts welcomed the larger-than-expected stimulus package, which represents about one-sixth of China's overall annual economic output. They said the spending would help businesses, bolster demand for commodities and lift consumption -- which would, in turn, give a boost to a world economy that is faltering.
With the U.S., Japan and much of Europe in a deep downturn, China's role looms ever larger as it has been a major driver of global economic growth in recent years.
In the last five years, China's economy has expanded by double digits, but the annual growth rate slowed sharply to 9% in the third quarter amid weakening exports and a sagging real estate market. Some analysts have predicted that growth would fall much lower next year, a prospect that worries Chinese officials because of the threat of rising joblessness and the risk of social instability.
"This broad-based fiscal stimulus program will emerge as the government's front line of defense against an excessive economic slowdown," said Jing Ulrich, managing director of China equities at JP Morgan in Hong Kong. Ulrich called Beijing's efforts to upgrade infrastructure, develop the countryside and undertake social welfare projects as China's version of a New Deal.
With $2 trillion in foreign reserves and a healthy budget surplus, China has the ability to adopt an aggressive fiscal policy.
"This pro-growth policy response will help translate the balance-sheet strength of the economy into economic growth resilience," said Qing Wang, an analyst at Morgan Stanley in Beijing.
The stimulus package comes as China's president, Hu Jintao, prepares to travel to Washington for a Nov. 15 economic summit with world leaders, including President Bush. Over the weekend, Hu talked with President-elect Barack Obama by telephone about the global financial crisis, among other issues, the New China News Agency said.
In recent weeks, Beijing has announced a number of measures aimed at boosting economic growth, including interest-rate cuts, tax rebates for exporters and reduced reserve requirements for banks so more money could be made available for lending. China also indicated plans to use substantial funds for various infrastructure and rural-development projects.
It wasn't clear how much of the previously budgeted monies were included in the latest stimulus package. The announcement today said China would spend about $58.6 billion in the current quarter, with additional funds to be used over the next two years to finance programs in 10 major areas, including projects related to water, electricity, technological innovation and rebuilding from disasters such as the May 12 earthquake.
Ulrich said Beijing has huge infrastructure projects planned to 2020.
"Despite the weakening economy and slowing tax revenue in recent months," she said, "the government has every political incentive to boost spending in priority programs."
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