05 Mar 2009
March 5 (Bloomberg) -- Premier Wen Jiabao said China's 8 percent growth target for this year is within reach, indicating the government doesn't see the need to increase a 4 trillion yuan ($585 billion) economic stimulus.It's "possible for us to meet this target," Wen told delegates in his annual speech to China's parliament in Beijing today. The nation needs to "reverse the economic slide as soon as possible."
Wen pledged to "significantly increase" investment after collapsing exports dragged the world's third-largest economy to its weakest growth in seven years and cost the jobs of 20 million migrant workers. The Shanghai Composite Index of stocks fell 0.8 percent as of 2:28 p.m. local time after surging 6 percent yesterday on speculation that the government would add stimulus measures.
"They are keeping ammunition in reserve," said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. "Every day the world economy gets worse and they've probably got two years of very slow global growth to get through."
Stocks climbed around the world yesterday after former statistics bureau head Li Deshui said Wen would announce a new package of stimulus measures today in the equivalent of a U.S. State of the Union address.
Social Unrest
The 8 percent growth target compares with the International Monetary Fund's forecast that the nation's economy will expand 6.7 percent, the least in almost two decades.
With 20 million rural laborers who previously found jobs in cities now unemployed, and 7.1 million college graduates seeking work, authorities are alert to the danger of social unrest.
The drop in China's growth rate has led to excess production capacity in some industries and put "severe pressure" on employment, Wen said. "We face unprecedented difficulties and challenges."
The government said it will boost 2009 public security spending by 32.6 percent to 116 billion yuan ($17 billion), mostly to maintain stability in the country's western and central regions.
The 2009 budget deficit was set at 750 billion yuan, widening to a record 950 billion yuan including local-government bonds, as the slowdown cuts revenue and the government keeps spending.
Fitch Affirms Rating
The deficit, up from 111 billion yuan last year, is forecast to be within 3 percent of gross domestic product, compared with the 12 percent shortfall budgeted by the U.S. government this year.
Fitch Ratings affirmed China's long-term foreign currency debt rating at A+, the fifth-highest grade, citing "an exceptionally strong external balance sheet."
Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong said it was "difficult to distinguish between today's package and previously announced packages." Still, the size of the spending would be enough to spur a recovery in the second half of this year.
"Everybody was prepared for the announcement of new spending measures and they haven't delivered," said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. "They will not reach their 8 percent growth target. It's quite disappointing."
‘Very Confident'
Fiscal spending will rise 22 percent this year to 7.62 trillion yuan ($1.1 trillion), a smaller increase than last year's actual 25.4 percent gain, Wen said.
Statistics bureau head Ma Jiantang said he was "very confident" that China could achieve its growth target, citing the third monthly increase in the official manufacturing index in February.
While China's economy is the only one of the world's five biggest still growing, the pace has slowed for six straight quarters. The expansion in the three months through December was 6.8 percent from a year earlier, compared with 13 percent for all of 2007.
Public spending, mostly on infrastructure, will more than double to 908 billion yuan, Wen said. Social welfare spending will rise 17.6 percent. Science and technology investment climbs 25.6 percent. The government is more than doubling a development fund for small businesses to 9.6 billion yuan.
China is targeting inflation of 4 percent, compared with an actual rate of 5.9 percent in 2008, Wen's report showed. Weaker growth and falling commodity prices have increased the likelihood of deflation for part of this year.
Crisis ‘Still Spreading'
The global financial crisis "is still spreading and is yet to bottom out," said Wen, adding that a trend toward global deflation was becoming more obvious. Trade protectionism is rising, the premier said.
Wen's report contrasted with a year earlier, when he pledged to rein in lending and growth in money supply to cool inflation and prevent the economy from overheating. This year, the government spurred a record jump in new loans in January by pressing banks to support the stimulus program.
The stimulus package announced in November spans spending through 2010 on public housing, railways, highways, airports, power grids and reconstruction work after last year's earthquake in Sichuan province
