China’s Wen Says It’s Too Early to Exit From Stimulus Policies

By Bloomberg News

Sept. 10 (Bloomberg) -- China’s Premier Wen Jiabao said the nation “cannot and will not” pull back from policies designed to revive the world’s third-biggest economy.

Stimulus measures have “yielded initial results and we have arrested the downturn in economic growth,” Wen said today in the keynote speech at the World Economic Forum in Dalian, a city in northeastern China.

The Chinese economy is rebounding from its slowest expansion in almost a decade on record lending in the first half and a 4 trillion yuan ($586 billion) stimulus package. Falling exports, overcapacity in manufacturing and elevated unemployment have restrained the recovery.

“The worst has passed, now it’s about whether China can maintain the strong momentum of a recovery that’s primarily been driven by policy stimulus,” said Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong. “Very weak external demand is the key concern.”

Wen said the government will continue with a moderately loose monetary policy and a “proactive” fiscal policy.

He said he saw “the light of dawn” for a recovering world economy and added that domestic demand is playing a bigger role in China’s economy.

The government said yesterday that the employment situation remains “grave,” underscoring the need to promote economic growth to create jobs and preserve social stability as the Communist Party prepares to celebrate 60 years of rule on Oct. 1.

Social Unrest

While China’s gross domestic product is 70 times bigger than when Deng Xiaoping endorsed free-market policies in 1978, widening income disparities, corruption, pollution and ethnic tensions threaten to foster unrest. Five people died last week in protests in Urumqi, where ethnic Uighurs and Han Chinese are at odds, following unrest in July which killed almost 200 people.

The nation is “taking all possible steps to expand employment,” the premier said today.

The government also faces the challenge of reducing the economy’s dependence on investment and exports for growth and boosting services and domestic consumption. Achieving that goal could help to reduce global imbalances in spending and saving that some economists blame for helping cause the global financial crisis.

The economy accelerated in the second quarter, expanding 7.9 percent, and economists forecast faster growth for the rest of the year. World Bank President Robert Zoellick said Sept. 2 that the nation’s expansion has aided trading partners and increased the chance of a global rebound.

China’s Pull

“Asia is recovering faster from the economic downturn than other regions, in part thanks to China’s gravitational pull,” European Union Trade Commission Catherine Ashton said in Beijing yesterday.

A resurgence of the property market, rising auto sales and the fastest expansion of manufacturing in 16 months in August have added to signs that the recovery is maintaining momentum.

China’s house prices in 70 cities rose 2 percent in August, double the gain in July, after sales and investment climbed, the statistics bureau said today. General Motors Co., the largest overseas automaker in China, more than doubled sales in the nation last month to 152,365 vehicles.

The government is due to announce August figures for trade, industrial production, fixed-asset investment, retail sales and inflation tomorrow.

Economic Expansion

China’s gross domestic product may increase 9.5 percent in 2010 after an 8.3 percent gain in 2009, the smallest in eight years, according to a Bloomberg survey of 22 economists conducted the week ending Aug. 28.

Investors in recent weeks indicated doubt that the recovery will be sustained as exports slide and the government seeks to rein in overcapacity in industries such as steel and cement.

The Shanghai Composite Index plunged into a bear market, or a decline of at least 20 percent, on Aug. 31 amid concern that reduced new lending in the second half could damp growth.

The index has since pared the slide to 16 percent, after regulators signaled support for the market and officials said that they wouldn’t retreat for now from a “moderately loose” monetary policy and “proactive” fiscal stance.

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Last Updated: September 10, 2009 05:43 EDT