Investors welcomed China’s multibillion dollar stimulus package but analysts said yesterday that Beijing must ensure companies get access to more credit to sustain its effectiveness.
Stock markets in Japan, Hong Kong and mainland China soared following Sunday’s announcement of the 4 trillion yuan (US$586 billion) package as China joined moves by governments around the world to cushion the blow of the slowdown.
The package calls for higher government spending on roads, airports and other infrastructure and bigger subsidies to the poor and farmers. It promises more lending for rural projects, smaller companies and consumers but gives no details.
The plan represents another drastic step away from lending curbs and other anti-inflation measures that Beijing imposed over the past three years but has been rolling back since the middle of this year as government alarm about slowing economic growth mounts.
“It is clear that aggressive fiscal stimulus is necessary to jump start the economy at a time of sharply deteriorating outlook and sentiment,” said UBS Securities economist Tao Wang (王濤) in a report to clients.
Still, “given the importance of bank financing in China ... increasing bank lending would be critical to sustain corporate investment needs,” he said.
The plan follows an unexpectedly sharp slowdown in economic growth that has raised the prospect of job losses and unrest.
China’s economic growth fell to 9 percent in the third quarter, its lowest level in five years, and analysts expect export growth to fall as low as zero in coming months as global demand weakens.
Beijing announced yesterday that wholesale inflation eased last month, which gives authorities more leeway to stimulate the economy without the threat that they might ignite new price rises. Producer prices rose 6.6 percent last month from the year-earlier period.
Alarmed at falling growth, the government switched its official goal in the middle of this year from a single focus on fighting inflation to a dual target of ensuring fast economic expansion while also containing price rises. It has cut interest rates three times in recent weeks and lifted limits on how much each Chinese bank can lend.
“We believe the government has totally changed its policy stance and will aggressively take all measures to stimulate the economy,” said Merrill Lynch economist Ting Lu (陸挺) in a report. “We believe the government could maintain economic growth above 8.0 percent next year with those policies.”
The plan’s immediate beneficiaries are likely to be construction and building-materials companies as Beijing spends more to build airports, roads and other infrastructure, analysts said. The plan also promises to increase subsidies to the poor and to raise minimum guaranteed prices paid by the government to farmers for grain.
“Accelerated infrastructure expansion will benefit contractors and building materials supplies,” said a report by Jing Ulrich, JP Morgan & Co’s chairwoman for China equities.
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