/ 13 March 2009

Asian giants eye new spending as G20 rifts emerge

China and Japan announced they were ready on Friday to boost spending to fight a worsening downturn as a rift widened over the global response to the crisis.

Chinese Premier Wen Jiabao said Beijing had set aside more money to pump into the economy if necessary as he admitted the global crisis was making this year’s target of 8% economic growth hard to achieve.

“We already have plans ready to tackle even more difficult times,” Wen told a news conference at the end of the annual full session of Parliament.

“To do that, we have reserved adequate ammunition, which means that at any time we can introduce new stimulus policies.”

Japan’s Prime Minister Taro Aso meanwhile ordered an additional economic stimulus to battle the country’s worst recession in decades, warning that it would be “too late to act” after the full extent of the slump becomes clear.

Local reports put the size of the package at $200-billion.

Japan and China have already unveiled huge stimulus packages aimed at propping up their economies in the face of collapsing exports.

In a stark reminder of the huge task facing policymakers, Japan said its factory output plunged a record 10,2% in January from the previous month — even more than first thought — as global demand for its goods dried up.

Splits emerged ahead of a key meeting of Group of 20 finance chiefs, with the United States and Japan calling for more stimulus spending and European leaders pushing tougher regulations as the best route out of the crisis.

Japan’s Finance Minister Kaoru Yosano questioned whether now was the right time to focus on tightening rules, telling the Financial Times that the priority should be to “save the life of the world economy”.

‘Prevent the catastrophe from happening again’
US President Barack Obama, who enacted a $787-billion stimulus Bill last month, has called for a two-pronged effort to fix the global economy — stimulus measures and regulatory reforms.

But German Chancellor Angela Merkel has said that the main issue “is not spending even more but to put in place a regulatory system to prevent the economic catastrophe that the world is experiencing from being repeated”.

The head of the Eurogroup of eurozone finance ministers, Prime Minister Jean-Claude Juncker of Luxembourg, has also rejected the US calls for more pump-priming by other G20 economies, declaring such proposals “do not suit us”.

The airline and automobile industries have been two of the biggest losers in the downturn and both reported more grim news on Friday.

European auto sales tumbled 18,3% in February, a sharp fall from a year earlier that could have been worse but for a strong performance in Germany, figures from the European Automobile Manufacturers Association said.

Austrian Airlines, in the process of being taken over by Germany’s Lufthansa, said high fuel prices, the financial crisis and a slump in demand all contributed to a record net loss of €429,5-million in 2008, compared with a profit of €3,3-million in 2007. — AFP