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May 24, 2012

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Home » Business » Economy

China acts to reverse slowdown

China is to boost the economy by accelerating construction of major infrastructure projects and encouraging private investment in some state-dominated industries, the central government said yesterday.

The "downward pressure on China's domestic economy is increasing," the State Council said in a statement.

Greater importance needed to be placed on stabilizing the economy with active measures to boost domestic demand.

China will expand private investment in state-dominated fields such as railways, energy, telecommunications, education and health care, the statement said.

The country would also "launch a set of major projects" that could help boost a wide range of industries, and accelerate construction of projects related to railways, energy-saving, environmental protection and educational and health care facilities in rural and western areas.

The statement comes at a time when concerns of slower growth in China intensified on the prospect that Greece could exit the eurozone.

A report by China International Capital Corp, China's largest investment bank, said yesterday that China's economic growth may slow down to 6.4 percent this year, lower than the government's 7.5 percent target, if the country holds back on stimulus plans.

The need for stimulus policies would increase significantly if Greece left the eurozone and "greatly impacts China's aggregate demand, dragging the economy well below its potential growth rate and causing unemployment to increase," CICC economists said.

The Chinese government statement yesterday avoided mentioning details of stimulus measures, while Ma Jun, chief economist of Deutsche Bank, said the government may increase lending to infrastructure projects, relax restrictions on lending to developers to build commercial residential projects, and allow banks to offer lower lending rates to lift demand.

But economists and banking insiders are expecting the size of stimulus measures this time to be much smaller than the 4 trillion yuan (US$631.5 billion) investment plan implemented in 2009.

The consequent economic overheating and surging consumer prices prompted the government to tighten monetary policies and restrict property investment.

The State Council statement was the latest in a number of pledges this week from China's leaders, including Premier Wen Jiabao and Vice Premier Li Keqiang, to stabilize the economy by "fine-tuning" policies.

Expectations for easier monetary policies and more stimulus plans have been mounting after major economic data for April revealed disappointing growth in industrial output, trading, bank lending and domestic consumption.

Yesterday's statement also pledged to increase financing of government-funded housing, further cut tax for companies, and to improve policies to encourage household spending.




 

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