China eyes stimulus steps as crisis weighs on growth

* China chief says need to increase domestic demand

* Prominent former lawmaker calls for help for exporters

* Planning official says mulling steps to stimulate growth

* Data leak suggests factory output growth slowed

By Zhou Xin

BEIJING (Reuters) - China needs to be ready with measures to cushion the impact of the global credit crisis on the world’s fourth-largest economy, senior officials said on Thursday.

China has already cut interest rates twice in recent weeks, and with the business climate worsening, many economists say a further relaxation of monetary policy as well as tax cuts and increases in public spending are only a matter of time.

“If you look at the extent of investment and consumption, you can see that growth is not bad,” central bank governor Zhou Xiaochuan said.

"But due to the impact of various factors, we may need to increase domestic demand further," Zhou told Hong Kong's Phoenix TV on Wednesday. The station posted a clip of the interview on its website,, on Thursday. [nPEK282004]

Figures due to be released on Monday are likely to show that China’s annual growth in gross domestic product dropped below 10 percent in the third quarter from 10.1 percent in the second quarter and 11.9 percent in all of 2007. [nPEK202912]

Yang Xiong, vice-mayor of Shanghai, said on Thursday that the city’s industrial output growth dropped to 6 percent in September from an average of 11.5 percent for the first nine months.

Steel and aluminium producers are cutting output sharply in the face of slumping prices, sales of cars and property have weakened, and executives say small firms in particular are finding it harder than ever to obtain credit. [nPEK269651]

Figures released by a power industry group on Thursday showed that China’s overall factory output growth slowed to 15.2 percent in the first nine months of the year, from 15.7 percent in the first eight months, implying that annual growth for September was well below the 12.8 percent pace in August. [nPEK304889]

A prominent former lawmaker said Beijing should shore up growth by offering more support to exporters and by cutting taxes, but he said the world can still be confident in China’s growth prospects.

“Even though Chinese growth has already slowed down, if China can expand by 8-10 percent a year, it can still make a great contribution to the world economy,” Cheng Siwei, a former vice-head of China’s parliament, wrote in the People’s Daily overseas edition.


The People’s Bank of China, in a statement on its website, vowed to enhance “communication and cooperation” with other central banks and international financial organisations to jointly manage financial risks and maintain financial stability.

Last week, China cut interest rates as part of a coordinated drive with central banks around the world to halt a free-fall in global financial markets.

Du Ying, a vice-director of the National Development and Reform Commission, the top economic planning agency, said China was considering new steps to stimulate the economy as exports, production and profits in coastal regions slowed.

But Du said China could weather the storm.

“As in the past, China can overcome the challenges and difficulties to enter a new stage of development. I’m fully confident of that,” Du said.

Yang and Du were speaking at a news briefing organised by the government on the development of the Yangtze River Delta around Shanghai.

Chen Min’er, a vice governor of Zhejiang, a prosperous eastern province with a vibrant private sector, said media reports of widespread factory closures were incorrect, although there had been “individual” cases of company failures.

Zhejiang would respond by trying to cut the tax burden on local firms, make more credit available and ensure a sufficient supply of land and power for manufacturers, Chen told the briefing.

“The fundamentals of the private economy remain healthy and sound despite difficulties with some companies,” he said, adding that now was a good time to weed out obsolete, polluting plants.

Yang, the Shanghai vice-mayor, said the financial hub was in good shape partly due to investments in preparation for the 2010 World Expo, which the city will stage.

“Amid the financial crisis, we are really lucky that we can have a big event like the World Expo,” he said.

Cheng, the former lawmaker, called for more help for exporters, especially those in the garment and textile sectors, to push them up the value chain, and said Beijing should encourage Chinese firms to increase overseas investments.

Cutting income and corporate tax would leave consumers and firms with more money to spend, he added.