Measures unveiled so far won’t push fiscal deficit beyond 3%: ADB economist
By ANTHONY ROWLEY 9 March 2009
China is holding its fire over declaring a new round of economic stimulus until it sees the effect of its initial four trillion yuan (S$904 billion) package but Beijing has the financial fire power to launch a second round of stimulus if required, economists say.
This will allow Premier Wen Jiabao to fulfil the pledge he made last week at the National People’s Congress (NPC) in Beijing to maintain China’s growth at the officially target 8 per cent this year.
Mr. Wen set out what officials termed a ‘massive package’ of measures including major government investments, tax reforms, industrial restructuring, scientific innovation, social welfare and employment promotion.
But analysts expressed disappointment that he did not specify new spending in addition to the four trillion yuan package that Beijing announced last November.
‘I think it’s too early to announce a second package yet,’ the Asian Development Bank (ADB) resident economist in China, Yolanda Fernandez Lommen, told The Business Times from Beijing after the congress, which she attended.
Measures announced so far will not push China’s fiscal deficit beyond 3 per cent of gross domestic product (GDP) while the ratio of outstanding government debt will be only a tiny fraction of that in the United States or Japan, she said in a telephone interview. ‘This means there will be room later on in the year, or next year, for a second round of stimulus.’
China’s Finance Minister Xie Xuren also commented after the NPC opening that the economic stimulus package ‘is something that our country can handle and (it)remains at a safe level’ .
China’s initial stimulus package is ‘very big’ - around 16 per cent of GDP, Ms. Fernandez Lommen noted. ‘It needs some time to be absorbed. That is why the Chinese Premier did not announce an additional package. If the measures don’t have the expected impact, they will consider further ones.’
Zhang Ping, head of China’s National Development and Reform Commission, the country’s main planning body, said in Beijing at the weekend that the central government would track the progress of the economy before deciding whether further stimulus is needed.
‘We cannot complacently assume that we can avoid the impact of the (global) crisis, or that out measures are already enough to counter it,’ Mr. Zhang said. ‘But I believe that with the measures we have taken - or will take - that we can have full confidence.’
Some sources have suggested that China’s economic stimulus plans could be boosted enormously over and above the central government’s four trillion yuan package by virtue of spending to be undertaken by provincial and other local government authorities.
Kimiyasu Nakamura, president of Dongfeng Motor Company, a joint venture between China’s government and Nissan Motors, said recently that provincial governments could add up to 18 trillion yuan to the central government figure, while Masahiro Kawai, dean of the Asian Development Bank Institute, suggested that the figure could be much larger still.
‘I imagine that these numbers are coming from the fact that, at the beginning, local governments in China were very excited about the prospects (for stimulus spending), especially in infrastructure,’ ADB’s Ms. Fernandez Lommen explained to The Business Times. ‘They came to Beijing with projects with a value of 14-15 trillion yuan. But the central government will make a selection and pick up only the ones they think most suitable and those will be eligible for financing.’
Local governments in China ‘will present a list of eligible projects, and those that are selected will have access to low-interest loans from the state banks’, she said. ‘China’s central bank has been increasing broad money supply, lifting lending quotas, reducing interest rates and providing liquidity to finance investments included in the package.’
Under China’s budget law, local governments cannot issue bonds, Ms. Fernandez Lommen noted. ‘But this is an exceptional situation and the State Council, or Cabinet, has been working on how to (change)the law, she said.
Mr. Wen announced to the NPC that local governments would be allowed to issue 200 billion yuan of bonds. ‘They will contribute with this and the rest is coming through the state banks.’
Since the announcement of the package last November, the Chinese government ‘has been announcing almost weekly all kinds of additional measures to stimulate demand - tax rebates or some special subsidised programmes for housing etc’, she said. ‘So, the total amount of stimulus might be much larger than four trillion yuan when we take into account all of these demand stimulus measures that are outside the package.’
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China ‘holding’ a second stimulus package for now
Measures unveiled so far won’t push fiscal deficit beyond 3%: ADB economist
By ANTHONY ROWLEY
9 March 2009
China is holding its fire over declaring a new round of economic stimulus until it sees the effect of its initial four trillion yuan (S$904 billion) package but Beijing has the financial fire power to launch a second round of stimulus if required, economists say.
This will allow Premier Wen Jiabao to fulfil the pledge he made last week at the National People’s Congress (NPC) in Beijing to maintain China’s growth at the officially target 8 per cent this year.
Mr. Wen set out what officials termed a ‘massive package’ of measures including major government investments, tax reforms, industrial restructuring, scientific innovation, social welfare and employment promotion.
But analysts expressed disappointment that he did not specify new spending in addition to the four trillion yuan package that Beijing announced last November.
‘I think it’s too early to announce a second package yet,’ the Asian Development Bank (ADB) resident economist in China, Yolanda Fernandez Lommen, told The Business Times from Beijing after the congress, which she attended.
Measures announced so far will not push China’s fiscal deficit beyond 3 per cent of gross domestic product (GDP) while the ratio of outstanding government debt will be only a tiny fraction of that in the United States or Japan, she said in a telephone interview. ‘This means there will be room later on in the year, or next year, for a second round of stimulus.’
China’s Finance Minister Xie Xuren also commented after the NPC opening that the economic stimulus package ‘is something that our country can handle and (it)remains at a safe level’ .
China’s initial stimulus package is ‘very big’ - around 16 per cent of GDP, Ms. Fernandez Lommen noted. ‘It needs some time to be absorbed. That is why the Chinese Premier did not announce an additional package. If the measures don’t have the expected impact, they will consider further ones.’
Zhang Ping, head of China’s National Development and Reform Commission, the country’s main planning body, said in Beijing at the weekend that the central government would track the progress of the economy before deciding whether further stimulus is needed.
‘We cannot complacently assume that we can avoid the impact of the (global) crisis, or that out measures are already enough to counter it,’ Mr. Zhang said. ‘But I believe that with the measures we have taken - or will take - that we can have full confidence.’
Some sources have suggested that China’s economic stimulus plans could be boosted enormously over and above the central government’s four trillion yuan package by virtue of spending to be undertaken by provincial and other local government authorities.
Kimiyasu Nakamura, president of Dongfeng Motor Company, a joint venture between China’s government and Nissan Motors, said recently that provincial governments could add up to 18 trillion yuan to the central government figure, while Masahiro Kawai, dean of the Asian Development Bank Institute, suggested that the figure could be much larger still.
‘I imagine that these numbers are coming from the fact that, at the beginning, local governments in China were very excited about the prospects (for stimulus spending), especially in infrastructure,’ ADB’s Ms. Fernandez Lommen explained to The Business Times. ‘They came to Beijing with projects with a value of 14-15 trillion yuan. But the central government will make a selection and pick up only the ones they think most suitable and those will be eligible for financing.’
Local governments in China ‘will present a list of eligible projects, and those that are selected will have access to low-interest loans from the state banks’, she said. ‘China’s central bank has been increasing broad money supply, lifting lending quotas, reducing interest rates and providing liquidity to finance investments included in the package.’
Under China’s budget law, local governments cannot issue bonds, Ms. Fernandez Lommen noted. ‘But this is an exceptional situation and the State Council, or Cabinet, has been working on how to (change)the law, she said.
Mr. Wen announced to the NPC that local governments would be allowed to issue 200 billion yuan of bonds. ‘They will contribute with this and the rest is coming through the state banks.’
Since the announcement of the package last November, the Chinese government ‘has been announcing almost weekly all kinds of additional measures to stimulate demand - tax rebates or some special subsidised programmes for housing etc’, she said. ‘So, the total amount of stimulus might be much larger than four trillion yuan when we take into account all of these demand stimulus measures that are outside the package.’
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