China’s Wen calls for action to boost growth


Wen Jiabao, China's premier, speaks during a news conference following the close of China's National People's Congress (NPC) at The Great Hall Of The People in Beijing. (Feng Li/Getty Images)
May 21, 2012

BEIJING—Wen Jiabao, China’s premier, paved the way for a fresh round of pro-growth policies at the weekend, triggering a surge in Asian and commodity markets anticipating a burst of stimulus measures in the world’s second-biggest economy.

But economists warned on Monday that Mr. Wen’s comments should not be taken as a sign Beijing was preparing the same sort of big bang package it rolled out after the 2008 financial crisis and any stimulus was likely to be incremental and cautious.

Concerns over China’s slowing economy have weighed on global equities and commodities, but Mr. Wen’s comments were the clearest indication yet that Beijing planned to take policy action to stimulate growth.

“We should continue to implement a proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth,” Mr. Wen said, in comments that prompted a rally in equity markets across the Asian region.

While only a slight change in his previous choice of language, his comments were regarded as a clear signal that Beijing was concerned about crumbling economic indicators.

Although officially China’s economic growth was 8.1 per cent in the first quarter of the year, from the same period in 2011, new loan growth and commodity imports have plummeted during the past month, implying that the real economy is struggling more than the headline figures suggest.

Mr. Wen outlined a broad set of incremental policy measures to China’s economic growth on track, including more loans for big infrastructure projects, lower financing costs, tax cuts and more credit for small and medium-sized businesses. He suggested that a programme to encourage purchases of home appliances and building materials should be extended.

“He wants to step on the accelerator a bit harder than before and step on the brake less than before,” said Yu Song, economist at Goldman Sachs.

“This statement is his clearest expression of concern over the past half year.”

Analysts said the shift in policy direction would mean more room for local governments to undertake large-scale investment projects and could mean more central government support for such schemes. But there was no indication that Beijing would open the credit taps as it did in the wake of the financial crisis.

“You won’t get one big package but the incremental efforts will be very meaningful,” said Ken Peng, economist at BNP Paribas. “There’s little that can be done with monetary policy at the moment, but fiscal policy has more room for pro-growth measures.”

Mr. Wen made his comments after a tour of the area around Wuhan, an industrial centre and a city of 10m people. In a lengthy essay posted on the Chinese government’s official site, Mr Wen. described his meetings with dozens of business leaders in the area and voiced his concerns about falling demand and sales.

The chief executive of Hai’er, the electronics and appliances company, told Mr. Wen that home appliance sales fell 13 per cent in the first quarter of this year compared with last year. The head of Wuhan Heavy Duty Machine Tool Group said sales were steady but fewer new contracts were coming through.

The eurozone crisis and flagging global economy slowed China’s export growth to a meagre 4.9 per cent in April from a year earlier, compared with

29.9 per cent export growth in April 2011 compared with the previous year.

This article was originally published in the Financial Times.

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