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China ups state-led investment amid SARS

A Chinese migrant worker sits by an anti-SARS poster in Beijing yesterday. China's State Council has approved increased spending on job-creation projects in an attempt to cushion any economic hit from SARS. PHOTO:REUTERS

China accelerated state-led investment in roads, railways and factories last month as the government tried to stem an economic slowdown stemming from the SARS epidemic.

Fixed-asset investment -- which includes spending by government and state-owned enterprises -- rose 35 percent from a year earlier to 331 billion yuan (US$40 billion) after increasing 29 percent to 279 billion yuan in April, the National Bureau of Statistics said in a statement released in Beijing.

"It could be partly the front-loading of government spending," said Prakash Sakpal, an economist at ING Bank NV in Hong Kong.

China urged state-owned enterprises to bring forward planned spending "to outweigh the impact of SARS," he said.

The spread of SARS curbed consumer spending in cities such as Beijing and Guangzhou, and kept foreign tourists, investors and buyers away, slowing economic growth. In Beijing, the world's worst-infected city, growth slowed three-fifths last month, retail sales dropped by a tenth and foreign tourist arrivals plunged 94 percent.

The fixed-asset-investment growth rate in the Chinese capital was 6 percentage points higher in the first five months than it was in the January-to-April period, the bureau said. For the whole country, the rate rose 1 percentage point to 32 percent, giving spending for the first five months of 1.06 trillion yuan.

China is spending record amounts on projects such as the Three Gorges Dam, a railroad to connect Qinghai Province to Tibet and a West-to-East gas pipeline to keep the world's sixth-largest economy growing at least 7 percent a year. That's the pace of growth the government says is needed to create jobs for about 8 million people entering the workforce each year.

The central government plans to invest 100 billion yuan over the next three years to build 176,000km of roads, the Ministry of Communications said last month. There are 184 towns and 54,000 villages, mostly in the poorer, western part of the country, that have no access to roads.

The government is projecting a record budget deficit of 320 billion yuan this year and prior to the SARS outbreak had planned to rein in spending to help narrow the gap in its finances. It may be inclined to press ahead with this plan now the disease has been brought under control and life returns to normal.
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