Investment key to stabilising China growth

Premier Wen Jiabao said promoting investment growth is the key now to stabilising China’s economic expansion, signalling officials may boost spending to counter a slowdown that probably extended into a sixth quarter. Stabilising economic growth is not only a pressing priority for China now, it is also a long-term “arduous” task, Wen said in a statement posted on a government website on Wednesday. “Growth-stabilising policies include boosting consumption and diversifying exports, but currently, what is important is to promote a reasonable growth in investment,” Wen said. China’s expansion is cooling as Europe’s debt turmoil reduces exports and Wen’s prolonged crackdown on property speculation restrains domestic demand. Growth may have slid to 7.7 per cent in the second quarter, according to the median estimate in a Bloomberg News survey, the least in three years. “Public investment will likely go up in coming months,” said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc, who previously worked for the International Monetary Fund. “It is the most effective way and likely the only effective way to push up growth in the short term.” Interest rate cuts help yet take time to filter through the economy, he said. The statement builds on remarks reported by the official Xinhua News Agency two days earlier, where Wen said during an inspection tour in the eastern province of Jiangsu that “stabilising investment currently plays a key role in expanding domestic demand and maintaining growth”. The government will intensify fine-tuning of policies, Wen said after the second interest-rate cut in a month. Stocks fall The Shanghai Composite Index fell for a third day and was down 0.2 per cent at the 11.30am local-time break. The MSCI Asia Pacific Index declined 0.2 per cent, the fifth straight drop. China needs to keep a certain level of economic growth to provide foundations for economic and social development and improving people’s livelihoods, Wen said in yesterday’s statement, which summarised discussions with economists and company executives held on July 9-10. Wen didn’t specify what level of growth is necessary. In March, he set a target of 7.5 per cent for gross domestic product expansion this year, the first time since 2004 the government had a goal below 8 per cent. Annual targets are routinely surpassed and are more indicative of the direction of policy. Growth last year of 9.2 per cent compared with the 8 per cent goal. The premier said that when promoting investment, “greater importance should be given to the destination, structure, quality and cost-effectiveness” of spending. He also called for more support for “emerging industries and new technology research and development”. Stimulus measures Xinhua reported in May that China has no plan to introduce stimulus measures to support growth on the scale unleashed during the depths of the global credit crisis in 2008. At the same time, China has in recent weeks accelerated approvals for projects including clean energy and lower-polluting steel mills. China’s imports rose less than estimated in June while export growth slowed, customs bureau data showed on Wednesday. A statistics bureau report the day before showed consumer inflation eased to 29-month low last month. The government is set to release figures on July 13 for second-quarter gross domestic product, investment and industrial production. “The domestic and external economic situations are relatively complicated,” Wen said. He cited “downward pressure on the economy”, after being quoted on July 8 as saying the pressure is still “relatively large”. Growth focus Wen’s comments “highlight the government’s focus on reviving the economy and may lead to new fiscal measures”, said Dariusz Kowalczyk, a Hong Kong-based senior economist and strategist at Credit Agricole CIB. Wednesday\'s statement didn’t discuss monetary policy or the property market. Authorities will keep implementing a “proactive fiscal policy” and “prudent monetary policy,” while “unswervingly” sustaining curbs on property market to prevent prices from rebounding, the July 8 news report said. Elsewhere in the Asia-Pacific region, South Korea’s unemployment rate held at a four-month low last month as industries including health care and education added workers. Australian consumer confidence rose to a five-month high as households responded to the central bank’s 1.25 percentage points of interest-rate cuts since November, a private survey showed. Rates unchanged Sri Lanka today left interest rates unchanged for a third straight month as one of Asia’s fastest inflation rates limits room to join a monetary stimulus drive stretching from China to Europe. Also on Thursday, Germany is scheduled to report its consumer price index for June while Russia will release weekly inflation data. The US Federal Reserve will release minutes from its June 19-20 meeting, where policy makers expanded their Operation Twist programme to extend the maturities of assets on the central bank’s balance sheet. Separately on Wednesday, China, the world’s second-biggest oil consumer, said it will reduce gasoline and diesel prices for the third time since May after global crude costs tumbled, returning pump rates to levels last seen in December 2010. China Southern Airlines Co, the nation’s biggest carrier by passengers, said first-half profit may fall more than 50 per cent because of slowing economic growth and higher jet-fuel prices, according to a statement yesterday by the Guangzhou-based company.