China: Stimulus splits analysts
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China: Stimulus splits analysts

News that China’s National Development and Reform Commission is considering a new stimulus package in addition to the Rmb4 trillion ($586 billion) plan announced on November 9 will bring cheer to investors and analysts who regard the country’s growth as central to the prospects of an Asian, or indeed global, recovery from the present crisis.

The new plan, widely discussed in the Chinese media but not formally announced at the time of going to press, would focus on promoting domestic consumption rather than infrastructure development.

Details of this new plan, including the likely total to be spent, remain unclear but both this package and the previously announced infrastructure spending are being closely monitored because the health of the Chinese economy is seen as vital to the global battle against recession. Yiping Huan and Ken Peng, analysts at Citi, summarize this view in a note published on November 24. "The rationale for [the new stimulus package] seems clear – the policymakers hope to provide stronger support to consumption," they write. "Two weeks ago, the State Council announced a massive Rmb4 trillion fiscal stimulus package, concentrating on infrastructure development. That package should have a direct impact on growth performance. We believe it is necessary at a time when the global economy is falling rapidly. However, questions have been raised whether such policy action might exacerbate the overinvestment problem that policymakers have been worrying about. After all, the current government has been trying hard to rebalance the economy – slowing investment growth and stimulating consumer spending.

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