China is considering a 54-billion-dollar stimulus plan involving tax cuts and
government spending, state media said Monday, in another sign that boosting the
economy is becoming a priority.
The 370-billion-yuan proposal, which has yet to be finalised, includes 220
billion yuan in fiscal spending and 150 billion yuan in tax cuts, according to
the Economic Observer, a weekly newspaper.
News of the plan follows a slowdown in Chinese economic expansion, which some
experts fear could intensify following the end of the Olympics in Beijing .
There are also concerns about the Asian giant's export engine as US growth
struggles and recession looms over both Japan and the Eurozone.
"The report does have a great deal of credibility," said Shanghai-based
Oriental Securities economist Feng Yuming.
"The central government is beyond the point where it is satisfied merely with a
'wait-and-see' attitude. Now we're seeing some action."
Chinese economic growth slowed to 10.4 percent in the first half from 11.9
percent for all of 2007, partly because of a deceleration in export growth.
Recent data showed China's trade surplus declined 9.6 percent in the first
seven months of 2008 from the same period last year, confirming the impact of
the US-led global economic slowdown.
The Central Financial Leading Group, which is composed of senior officials from
various government agencies, supports the stimulus plan but it still needs to
be submitted to the State Council, or cabinet, the Economic Observer said.
The proposal is meant to "give the economy some breathing room" following a
slowdown after monetary tightening, the report said, adding that the Ministry
of Finance is to work out the plan's details.
The report comes after JPMorgan Chase economist Frank Gong said in a note last
week that Beijing was mulling an economic stimulus package of up to 400 billion
yuan to boost growth.
China could in principle spur growth by cutting interest rates too, but fiscal
measures have certain advantages that may be attractive to policymakers in
Beijing , economists argued.
"Fiscal measures work relatively fast, while monetary policies tend to have an
impact on the economy only after a time lag," said Feng.
The question remains whether China has the resources to embark on an ambitious
new programme of spending.
"Government coffers me be a bit under pressure in the second half of the year,"
said He Jun, an economist with Beijing -based consulting firm Anbound Group.
He pointed out costs such as spending on relief efforts for the victims of the
devastating earthquake in southwest China's Sichuan province in May.
However, any new measures will mainly be fine-tuning and drastic policy changes
are not necessary, Fan Jianping, a researcher with the State Information
Centre, a government think tank, said in remarks published Monday.
There have been positive changes in trade, retail sales and investment figures
"so there is no need to be drastic in macroeconomic control in the second half
of the year," Fan told the official China Securities Journal.
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