China seeks to dampen stimulus expectations

BEIJING, May 30: China needs to boost investment to spur economic growth but Beijing should shun aggressive fiscal stimulus, influential academics said in remarks published in leading state-backed newspapers on Wednesday.
They joined a chorus of commentary countering market expectations that China might unveil a stimulus package similar to the 4 trillion yuan in spending unleashed during the global financial crisis.
Earlier this week, an official of the state planner, the National Development and Reform Commission (NDRC), said a large-scale economic stimulus package was unlikely.
An article published on the website of the official Xinhua news agency said China had no plan to repeat the powerful stimulus measures used during the global crisis in 2008.
‘The Chinese government’s intention is very obvious: It will not unveil another massive stimulus plan to stimulate economic growth,’ the Xinhua article said, without citing sources. ‘Current policies to stabilise growth will not repeat the old way of stimulating growth three years ago.’
It was not clear if the article, which also cited analysts, represents official thinking – Beijing usually publishes straight-forward commentaries, not analyses, when it wants to explain its stance.
But the story was in line with the mainstream view among Chinese policy advisers that Beijing will shun massive stimulus as it struggles with the after-effects of the package unveiled in late 2008.
Beijing is trying to clean up the roughly 10.7 trillion yuan ($1.7 trillion) in local government debt that resulted from the stimulus package to counter the global financial crisis, which has also been blamed for stoking inflation risks and fuelling a frenzy of property speculation.
The top government researchers and economists warned that excessive investment would reduce the efficiency of economic growth and exacerbate over capacity in some industries.
‘It is not necessary for China to launch another massive 4 trillion yuan stimulus plan. We must hold off any impulse of making excessive investment,’ said Liu Yuanchun, a professor at the Renmin University, according to the official People’s Daily, the mouthpiece newspaper of the ruling Communist Party.
Chen Bingcai, a professor at the National Academy of Governance, said China must not overly expand investment and sacrifice quality growth for high growth. Chen’s school teaches and trains many senior leaders of the central government.
‘If Beijing returns to an investment boom again, the previous call of adjusting the economic structure would turn out to be nothing but empty talk,’ the official China Securities Journal cited Chen as saying.
China’s economy is on course this year to grow 8.2 percent, its slowest pace since 1999, according to the consensus forecast of investment bank economists in the latest benchmark Reuters poll.
Beijing has unveiled several measures to boost domestic consumption and private investment as the economy faces the headwinds of a slowdown in export demand growth.
Such moves include fast-tracking approval of infrastructure investment, offering subsidies for buying energy-saving home appliances, encouraging more private capital to enter a handful of sectors, which are dominated by state firms. [ ID :nL4E8GT3QX]
The NDRC, China’s top economic planning agency, gave the green light to around 100 projects on May 21, fanning speculation that Beijing may initiate a new fiscal spending spree.
Global financial markets have been caught in a frenzy of speculation on the subject, which lingered on Wednesday.
Local media reports in China on Tuesday cited unconfirmed talk that Beijing was readying fresh stimulus. The tone had reversed by the end of the trading day in China.
Media began citing a microblog reference to a news briefing, purported to have been held by the NDRC, denying that a stimulus package like the one in the global financial crisis was in the pipeline.
The original Twitter-like microblog entry, reported by local media to have been on the official Xinhua microblog, could not be found when checked by Reuters. There was no mention of it on the Xinhua newswire or its public website.
The NDRC website carried no reference to the report, or a news conference and declined to comment when contacted by Reuters.
The later Chinese media reports cited the NRDC as saying there had been a misinterpretation of the May 21 announcements and that the project approvals had nothing to do with efforts to stabilise economic growth.
Luo Guosan, deputy director of the investment office at the NDRC, had said earlier in the week that there was little chance of Beijing unveiling another big spending plan to pump-prime the economy.
‘We want to target and maintain a reasonable level of investment in society to stabilise economic growth. To think about having another large-scale government-led investment spurt to stimulate economic growth, that is unlikely because it is not sustainable,’ Luo was quoted as saying in the Chongqing Commercial Daily on Monday.
The stimulus package during the global downturn fuelled speculation in China’s real estate sector and left local government with a mountain of debt.
‘We should pay attention to the investment growth pace, as the previous 4 trillion yuan stimulus plan has left us with many uncompleted projects. If we start new projects again, we may finally fail to wean the economy from investment,’ Bai Chongen, a professor at the Tsinghua University, was quoted as saying by the People’s Daily. ($1 = 6.3480 yuan)


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