March 20, 2014 / 8:22 AM / 3 years ago

WRAPUP 1-China says plans to speed up investment, stabilise demand

* Government to speed up investment, construction

* Premier says domestic demand needs to grow, too

* Slowing economy has fueled stimulus speculation (Adds detail, context)

By Koh Gui Qing

BEIJING, March 20 (Reuters) - Premier Li Keqiang said China will speed up investment and construction plans to ensure domestic demand expands at a stable rate - an indication authorities are considering practical measures to support slackening economic growth.

Li said at a weekly cabinet meeting that China needs to roll out approved plans for growing domestic demand to keep growth in the economy in a "reasonable range".

No further details were given in an official statement following the meeting, and it was not clear if Li had given authorities a green light to accelerate new investment, or to start work on projects that have already been approved.

But his remarks stoked speculation among analysts that Beijing is ready to stimulate the economy.

China rattled financial markets last week with data showing growth in investment, retail sales and factory output all hitting multi-year lows in January and February,

Investors, muti-national companies and its major trading partners fear a sharper-than-expected slowdown in China will soon drag on activity across the world.

China has fallen back on ramping up state investment to shore up its economy several times in recent years to support growth in incomes and employment.

In 2008/09, in the face of the global financial crisis, Beijing approved a whopping 4 trillion yuan ($645 billion) of state spending funded partly by bank loans.

That spending helped China recover quickly from the crisis, but the mountain of debt incurred fed other credit problems that the government now hopes to fix, in part by abandoning its former export- and investment-driven growth model.

Stimulus measures announced in several economic soft patches since then have been more modest and more focused, such as last year's pledges to boost spending on social housing, infrastructure, high-speed rail and energy-saving industries, and tax breaks for smaller firms.


China has been showing some determination to reform and few experts believe Beijing will launch another super-sized stimulus to prop up the economy.

On Thursday, the government relaxed rules to allow more foreigners to invest in its stock markets, the latest step to free its financial markets after widening the yuan's trading band at the weekend, taking it closer to turning the yuan into a convertible, global currency.

But a more volatile yuan added to global jitters after it fell to a one-year low on Thursday.

Some analysts believe China's central bank is engineering this year's decline in the yuan to cushion the weakening economy by making exports more price competitive, and others speculate that the government may step up efforts to bolster growth in coming months.

Analysts from government-controlled think-tanks told Reuters last week that Beijing may loosen monetary policy by reducing the level of deposits commercial banks must keep at the central bank if the economic growth slips below the government's 7.5 percent target.

Beijing could re-energise the world's second-largest economy by increasing government spending, which may involve familiar themes of greater investment in railway construction, public housing and environmental projects such as water conservation.

"With the support of these investments in infrastructure, we believe the economy will stop its slowing trend by the second quarter," economists at Everbright Securities said, adding that the projects will likely be funded by the state budget. ($1 = 6.1965 Chinese Yuan) (Editing by Eric Meijer)

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