March 5, 2009 / 1:37 AM / 10 years ago

WRAPUP 2-China restates growth goal, silent on extra stimulus

* Premier Wen reaffirms 8 pct growth goal for 2009

* No mention of increase in fiscal stimulus package

* Budget gap projected at within 3 pct of GDP

By Jason Subler and Simon Rabinovitch

BEIJING, March 5 (Reuters) - Premier Wen Jiabao said China would ramp up its budget deficit to hit the government’s coveted 8 percent growth target but did not make the announcement markets had craved of an increase in its 4 trillion yuan ($585 billion) economic stimulus plan.

In his annual work report on Thursday to the National People’s Congress, the largely ceremonial parliament, Wen said the 2009 growth goal was realistic despite a deepening global financial crisis.

“It needs to be stressed that in projecting the GDP growth target at 8 percent, we have taken into consideration both our need and ability to sustain development in China,” he said.

“As long as we adopt the right policies and appropriate measures and implement them effectively, we will be able to achieve this target.”

Global markets soared on Wednesday on speculation that Wen would add to the stimulus plan unveiled in November to head off a rise in unemployment that could threaten the social stability prized by the ruling Communist party.

Wen said China’s budget deficit this year — 950 billion yuan — would jump to almost 3 percent of national income from 0.4 percent in 2008. By comparison, the United States is planning for a deficit of 12.3 percent of GDP this year.

Investment spending, covering everything from railways to affordable housing, will double; outlays on health care will rise 38 percent; and spending on the social safety net and employment will go up 22 percent, according to the 2009 budget.

But Wen announced no increase in the 4 trillion yuan price tag of November’s pump-priming package to revive the world’s third-largest economy, which has been hit by a slump in demand for its exports.


Economists said they still expected Beijing to ramp up spending if need be.

“Obviously they’re looking at a global economy that every day gets worse, so they might have decided to keep the extra spending in their pockets,” said Stephen Green, head of China research at Standard Chartered Bank in Shanghai.

Green noted that the first investment projects to be financed under the stimulus plan are only now being rolled out. “So maybe we need to wait until the second quarter and see how it pans out. They have more ammunition if they need it,” he said.

Jia Kang, a researcher at the Ministry of Finance, agreed.

“China may have to widen the fiscal deficit further if the economic situation continues to be weak in the second quarter,” Jia told reporters.

Shanghai stocks displayed no disappointment that Wen did not boost the spending package. The main index .SSEC ended the morning up 1.8 percent.

Balancing optimism with caution, Wen said China faced unprecedented difficulties and challenges due to the worldwide financial crisis, which he said is still getting worse.

“Demand continues to shrink on international markets; the trend toward global deflation is obvious; and trade protectionism is resurging. The external economic environment has become more serious, and uncertainties have increased significantly.”

But he said China’s prospects were as bright as ever.

“Neither the fundamentals of China’s economic and social development nor its positive long-term trend has changed.”


Bank lending has surged in response to the stimulus plan — Wen set an ambitious target of 5 trillion yuan in new loans this year, just above last year’s level — and surveys of manufacturers have perked up.

But exports have collapsed and a recovery in steel prices has gone into reverse, suggesting to many economists that China is not out of the woods yet.

Wen said his government would seek to prevent any threats from social unrest, which officials have warned could flare up as workers and farmers confront unemployment and income cuts.

Officials estimate about 20 million migrant workers have already lost their jobs due to the closure of export-dependent factories and a downturn in the construction industry.

“We will improve the early warning system for social stability to actively prevent and properly handle all types of mass incidents,” he said, using the government’s euphemism for riots, protests and demonstrations. (Reporting by Jason Subler, Simon Rabinovitch, Ben Blanchard, Emmma Graham-Harrison and Zhou Xin; Writing by Alan Wheatley and Chris Buckley; Editing by Ken Wills & Jan Dahinten)

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