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China fights slump with stimulus plan

Workers stand on the scaffolding of a building Wednesday in Beijing. Cities such as Beijing and Shanghai are speeding up construction of expressways and subway projects. Other cities plan to upgrade hospitals and other public facilities. 

Associated Press

Workers stand on the scaffolding of a building Wednesday in Beijing. Cities such as Beijing and Shanghai are speeding up construction of expressways and subway projects. Other cities plan to upgrade hospitals and other public facilities. 

BEIJING — China is rolling out a ministimulus plan to fight its economic slump but is moving cautiously after its massive response to the 2008 global crisis left a painful hangover of inflation and debt.

Beijing has yet to announce a total price tag. But measures announced piecemeal in recent weeks include $10 billion to build affordable housing and $4 billion to subsidize sales of energy-efficient appliances.

That limited size should make the effort more manageable than the $586 billion avalanche of spending and bank loans in 2008. But its power to boost growth in a $2.5 trillion economy also will be smaller.

Still, analysts say the measures should be enough to drive a rebound and keep growth for the year at or slightly above 8 percent.

"I do think it will make a big difference," said Nomura economist Zhiwei Zhang.

"Second-half GDP growth will be better than the first half, to a large extent driven by this support," Zhang said. "Without it, I think growth probably would trend down."

After spending two years enforcing lending and investment curbs to cool inflation and an overheated economy, communist leaders began gradually reversing course in December after a plunge in demand for China's exports.

Their efforts took on more urgency after economic growth plunged to a nearly three-year low of 8.1 percent in the first quarter and factory output in April grew at its lowest rate since the 2008 crisis. Analysts say growth should slow further in the current quarter.

The International Monetary Fund and the World Bank are forecasting 8.2 percent growth this year. The government's official target is 7.5 percent.

The appliance subsidies might help spur consumer purchases, but measures announced so far rely heavily on more spending to build airports and other public works and encouraging private sector investment.

Construction spending pumps money into the economy quickly but raises the risk of setting back the government's longer-term effort to reduce China's heavy reliance on investment to drive growth. Easing investment curbs also threatens to add to a glut of unneeded mills and factories in steel and other industries.

Dozens of new wind, hydro and other renewable power projects have been approved by the country's planning agency, the National Development and Reform Commission.

Cities such as Beijing, Shanghai and Fuzhou in the southeast are speeding up construction of expressways and subway projects. Other cities have received approval to upgrade hospitals, water treatment plants and other public facilities.

China fights slump with stimulus plan 05/30/12 [Last modified: Wednesday, May 30, 2012 10:40pm]
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