Friday, November 14, 2008

Official: Weakness in China's economy worsening

BEIJING, China -- Weakness in China's economy is worsening and the government faces a severe challenge as it tries to avert a sharp downturn, an official said Friday, as new data showed investment growth cooling.

"The downturn trend in our economy is more obvious, especially since September. We hope a rapid downturn in growth will not occur," Mu Hong, a deputy chairman of the nation's main planning agency, said at a news conference.

Mu expressed confidence Beijing's multibillion-dollar stimulus package would help the country weather the global downturn. But he said, "This international financial crisis is a new challenge for us. It is a severe challenge."

Beijing is moving quickly to launch the package and will distribute most of a planned 100 billion yuan ($15 billion) in additional government spending within the next two weeks, Mu said. He said the money will be spent on housing, rural development, highways, public health and environmental protection.

The plan calls for higher spending on infrastructure and social programs in an effort to spur domestic consumer spending and reduce reliance on exports. The government says the total stimulus -- which also calls for higher investment by state companies -- will be worth 4 trillion yuan ($586 billion) over the next two years.

President Hu Jintao is due to attend a Washington meeting of world leaders this weekend to discuss a possible response to the crisis. Hu is expected to come under pressure to use part of China's $2 trillion in reserves to contribute to a global bailout fund.

A deputy finance minister, speaking at the news conference with Mu, said Beijing has a "responsible attitude." But he said the stimulus is the most important step Beijing can take for global stability.

"We have worked to stabilize the growth of China's economy. We believe this will be our biggest contribution to the international response to the financial crisis," said the official, Yi Gang.

China's economic growth fell to 9 percent in the latest quarter after a stunning 11.9 percent expansion last year. Exporters say foreign customers are canceling orders, which has led to layoffs and factory closures.

Mu blamed the weakness on the global downturn. But data released Friday showed domestic investment -- a key force driving China's rapid expansion -- is also cooling as companies cut back or put off spending on real estate, factories and other assets.

Investment in assets grew by 27.2 percent in the first 10 months of this year over the same period of 2007, the National Bureau of Statistics reported. That was down from the 27.6 percent growth reported for the first nine months of the year. Such investment is estimated to account for one-third of China's economic growth.

"China's pace of economic growth will reflect the extent to which accelerated infrastructure spending will be able to offset a slowdown in the property and manufacturing sectors," said a report by Jing Ulrich, JP Morgan Chase & Co.'s chairwoman for China equities.

"Further fiscal and monetary easing may be called for as growth moderates," Ulrich said.

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