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2008-11-10 | All chapters

China galvanises economy with 'massive' infrastructure package
Geoff Dyer, Financial Times, 10th November 2008

China yesterday announced a "massive infrastructure spending programme" as part of a new fiscal stimulus plan aimed at boosting the country's rapidly slowing economy.

The State Council, China's cabinet, authorised Rmb4,000bn ($586bn) of investment on infrastructure and social welfare over the next two years, although it did not say how much of the spending would be on new projects not already in the budget.

The government said the spending plan reflected a decision to adopt an "active" fiscal policy to deal with the global financial crisis, while monetary policy would be "moderately active".

The announcement reflects mounting anxiety in Beijing that China's economy is cooling much more quickly than was initially expected in the face of weaker international demand and a slowdown in the local property market.

Two recent surveys of manufacturers showed a slump in activity in October, confirming anecdotal evidence that the slowdown has accelerated in recent weeks. Some economists believe that growth, which was nearly 12 per cent last year, could fall to as low as 6 per cent next year without a substantial fiscal stimulus.

Beijing has also been under growing international pressure to take fiscal measures to boost its economy in the hope that continued strong growth can provide some counter-balance to recession in the developed world.

Dominique Strauss-Kahn, the IMF's managing director, said yesterday he was "very happy" with China's announcement. "It is a huge package. It will have an influence not only on the world economy in supporting demand, but also a lot of influence on the Chinese economy itself and I think it is good news for correcting imbalances," he told Reuters after a meeting of G20 finance officials in Brazil.

The government has already cut interest rates three times, scrapped quotas for bank lending and unveiled measures to help housebuyers and some exporters.

According to the official Xinhua news agency, the State Council yesterday decided to "map out more forceful measures to expand domestic demand", which would include "massive" infrastructure spending.

The investments will focus on low-income housing, water, electricity, disaster relief and transport, particularly railways.

David McCormick, the US Treasury's undersecretary for international affairs, said China's stimulus package offered a "potential lift" to all countries.

Source: http://www.ft.com/cms/s/0/30cff162-aec8-11dd-b621-000077b07658.html?nclick_check=1