China - crisis deepening

The impact of the global financial crisis on China's economy is deepening and a large interest rate cut announced Wednesday is essential to boosting slowing growth, the country's top planner said.

This crisis is spreading all over the world and its impact on China's economy is deepening," Zhang Ping, chairman of the Cabinet's National Development and Reform Commission, said at a news conference Thursday. Zhang said economic indicators for November were showing an "even faster decline," though he gave no details.

A 1.08 percentage point reduction in the country's key one-year lending rate announced late Wednesday — China's biggest rate cut since 1997 and the fourth in three months — is "one of the essential measures to stimulate our economic growth," Zhang said.

Zhang said a 4 trillion yuan (USD 586 billion), two-year government stimulus package announced Nov. 9 should add about 1 percentage point to China's economic growth rate. That was below the 2 percentage point increase that independent analysts have forecast.

China's economic growth is expected to fall to about 9 percent this year, down from last year's rapid 11.9 percent rate. That would be the fastest of any major economy, but Chinese leaders worry about rising job losses, especially in export industries, and possible unrest.

Zhang said the government would take steps to boost growth and ensure the economy continues to create jobs. But he did not respond to a question about whether Beijing is planning to enact additional stimulus plans.

A state newspaper reported last weekend that Zhang's agency is working on an additional stimulus package that is meant to supplement the Nov. 9 package with more spending on health, education and other social programs.

The main stimulus package calls for insulating China's economy from the global downturn by injecting money into the economy through higher spending on construction of airports, highways and other projects. It is meant to spur domestic consumption.

The cut in the one-year lending rate to 5.58 percent, effective Thursday, is aimed at encouraging consumers and businesses to borrow and spend, which is seen as a more effective way to fuel growth than government spending.

The stimulus package includes 1.8 trillion yuan (USD 263 billion) in spending on airports, highways and other, 370 billion yuan (USD 54 billion) to improve infrastructure in the poor countryside and 350 billion (USD 51 billion) for environmental projects, according to Zhang.

It also includes 280 billion yuan (USD 41 billion) for construction of low-income housing and 40 billion yuan (USD 5.8 billion) for health and education programs, Zhang said.

Zhang said the government is still working on how local governments will pay for their share of the stimulus spending. The central government is to supply 1.2 trillion yuan (USD 175 billion) of the total stimulus spending, with the rest coming from lower-level governments and state companies.