Chinese officials on Friday painted a mixed picture of the economy, with one saying the country was on track to hit its 8% growth target this year but another warning the downturn had yet to bottom out.
A Communist Party adviser also said China will boost stimulus spending, already pegged at an eye-popping 4-trillion yuan ($585-billion), if first-quarter economic performance disappoints.
A tug-of-war between official optimism and more sober assessments has been inflamed in recent days by economic indicators that suggest China has weathered the financial crisis better than most countries but that worse may still come.
Fu Ziying, vice-commerce minister, said that declining confidence in international markets and industrial overcapacity at home meant the road ahead remained bumpy.
”I don’t think China’s economy will bottom out in the first quarter. That means China’s economy will be further weighed down by the worsening external environment,” he said at a forum.
China’s annual economic growth slowed to 6,8% in the fourth quarter of 2008 from 9% in the third quarter and 10,1% in the second quarter.
Some economists have forecast that the fourth quarter would prove to be the low after bank lending surged and manufacturing surveys pointed towards a recovery to start this year.
At a separate press briefing on Friday, a senior planning official said China would be able to hit its target of 8% growth this year, despite the pressure on the economy.
Liu Tienan, vice-chairperson of the National Development and Reform Commission (NDRC), said the Chinese financial system was strong and the economy’s fundamentals were unchanged, which together with stimulus policies should enable stable growth.
”We have the conditions, potential and confidence,” he said. ”After the downward pressure since the fourth quarter, we have seen some positive signs on a monthly basis.”
Reading the tea leaves
Positive sentiment generated above all by the 1,6-trillion yuan burst of new yuan lending in January, a monthly record, fuelled a Chinese stock rally that has made the country’s markets the best performing in the world this year.
But worries that the lending figures had been inflated by short-term financing has sapped investors’ enthusiasm in recent days, putting the Shanghai Composite Index in line for a drop of about 8% this week.
Adding to the doubts about the economy’s resilience was a report in Hong Kong’s Ming Pao Daily earlier this week, citing a customs official in the southern Guangdong province, that China had registered a trade deficit in the first half of February.
If true and sustained for the full month, it would be China’s first monthly trade deficit in nearly five years and a stunning reversal from its $39,1-billion surplus in January, the second biggest on record.
A collapse in imports has been the only reason that China has maintained a trade surplus, as its exports have dropped for three straight months.
The withering of external demand and lower private investment domestically because of weakness in the property sector have made the Chinese government’s 4-trillion yuan stimulus plan crucial for growth this year.
The government will increase the scale of its investment if the stimulus spending to date does not yield positive results in the first quarter, said Zheng Xinli, vice-head of the Communist Party’s policy research office.
Domestic media has reported that China is aiming for a fiscal deficit of 950-billion yuan in 2009, or about 3% of GDP, which would be the largest on record in decades.
The government is expected to announce its spending plans at an annual national legislative meeting that opens next week.
Liu of the NDRC did not confirm or deny the media reports but gave his backing for a bigger deficit.
”It is necessary to increase the fiscal deficit. It is within the bearable range and is controllable,” he said.
A flood of spending proposals by local governments in recent months means that China has no shortage of public investment demand. The government may soon announce a doubling of its overall stimulus package to 8-trillion yuan, Mingchun Sun, Nomura’s chief China economist, said earlier this week. – Reuters