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China premier says stimulus is off to good start

BEIJING (Reuters) - China’s stimulus spending has started to nudge the economy in the right direction but the global financial crisis could still take a turn for the worse, Chinese Premier Wen Jiabao told an online forum on Saturday.

Wen’s message, mixing confidence and wariness, followed a series of comments over the past week by Chinese officials that suggested the government is ready to unveil new investment plans if needed to revive the world’s third largest economy.

“The financial crisis, (on a scale) rarely seen in 100 years, is still spreading and has not bottomed out yet,” Wen said during a rare online chat.

“Measures adopted by the government have seen initial success,” he said.

Wen, who has honed a reputation as a softly spoken leader with a common touch, was greeted by questions from more than 500,000 Internet users in the forum held before the annual session of parliament opens next week.

A Communist Party adviser had said on Friday that China will boost stimulus spending, already pegged at an eye-popping 4 trillion yuan ($585 billion), if first quarter economic performance disappoints.

Although Wen did not address the question of expanding the stimulus, he emphasized that the spending must be directed primarily at generating jobs.

“When the government invests, priority should be given to people’s livelihoods and to letting the people have substantial benefits,” he said. “The most basic (thing) is to let the economy develop and let people be employed.”

CREATING JOBS

China slowed to a seven-year low of 9 percent growth in 2008 and many economists expect it to slip this year below 8 percent, which is widely regarded as a minimum to create enough jobs for the millions entering the labor force.

“Employment of migrant workers and university graduates has always been on my mind,” Wen said.

A senior official recently estimated that about 20 million migrant laborers, nearly one-sixth of China’s “floating population” of 130 million such workers, had returned jobless to the countryside.

Wen reiterated a long-standing commitment to prop up the smaller firms that were the engines of China’s stunning growth over the past two decades but have complained of second class treatment as banks have directed a rush of new loans mostly toward big state-owned enterprises.

“We should adopt resolute and strong measures to support small- and medium-size enterprises,” he said. “Only if China has confidence, will it have new hope.”

Wen pledged to strengthen cooperation with Taiwan to deal with the global crisis, especially in the financial arena.

“We should extend reasonable credit support to Taiwanese businessmen and enterprises,” he said.

Wen also admitted that a government drive to overhaul the health care system lacked intensity.

China plans to spend about 850 billion yuan ($124 billion) on health-care reforms over the next three years, but bureaucratic squabbles have left the plans short on detail.

The health care sector is one of the weak links in China’s social welfare system -- together with under-funded education and social security systems -- that creates a drag on domestic consumption and has increasingly become a source of discontent.

Commenting on a German student throwing a shoe at him during a recent visit to the UK, Wen said: “The first thing that came to my mind was to maintain the dignity of our country and people and to maintain the friendship between China and the UK.”

Wen said he was blinded by spotlights and could not see what was thrown at him. “Even if it was a dangerous item, I would not have budged a bit,” he said.

Additional reporting by Li Jiansheng and Simon Rabinovitch; Editing by Ruth Pitchford

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