China Will Do What it Can to Target 8% Growth

Spend, spend, spend:

March 5 (Bloomberg) — Premier Wen Jiabao said China will “significantly increase” investment in 2009, widening efforts to meet the 8 percent economic growth target that it says is needed to protect jobs.

“We face unprecedented difficulties and challenges,” Wen told delegates to China’s parliament in Beijing today. The nation needs to “reverse the economic slide as soon as possible,” he said, without announcing an increase to the government’s 4 trillion yuan ($585 billion) stimulus package.

China’s export collapse has dragged the economy to its weakest growth in seven years and cost the jobs of 20 million migrant workers, adding to the risk of social unrest. The Shanghai Composite Index rose 0.7 percent as of 9:55 a.m. local time, extending the biggest rally in four months.

“There will be a sizable stimulus occurring in the economy this year,” said Glenn Maguire, an economist at Societe Generale SA in Hong Kong.

Wen’s report to lawmakers, the equivalent of a U.S. State of the Union speech, reiterated the 8 percent growth target. That’s more optimistic than the International Monetary Fund’s forecast that the nation’s economy will grow 6.7 percent, the least in almost two decades.

The 2009 budget deficit was set at 750 billion yuan, widening to a record 950 billion yuan including local-government bonds, as the slowdown cuts revenue and the government spends to revive the economy. The deficit will be within 3 percent of gross domestic product.

Fiscal Spending

Fiscal spending will rise 22 percent this year to 7.62 trillion yuan ($1.1 trillion), a smaller increase than last year’s actual 25.4 percent gain, Wen said.

Public spending, mostly on infrastructure, will more than double in 2009 to 908 billion yuan.

Social welfare spending will rise 17.6 percent, he said. Science and technology investment climbs 25.6 percent. The government is more than doubling a development fund for small businesses to 9.6 billion yuan.

China is targeting inflation of 4 percent, compared with an actual rate of 5.9 percent in 2008, Wen’s report showed. Weaker growth and falling commodity prices have increased the likelihood of deflation for part of this year.

The global financial crisis “is still spreading and is yet to bottom out,” said Wen, adding that a trend towards global deflation was becoming more obvious. Trade protectionism is rising, the premier said.

Still Growing

While China’s economy is the only one of the world’s five biggest still growing, the pace has slowed for six straight quarters. The expansion in the three months through December was 6.8 percent from a year earlier, compared with 13 percent for all of 2007.

Wen’s report contrasted with a year earlier, when he pledged to rein in lending and growth in money supply to cool inflation and prevent the economy from overheating. This year, the government spurred a record jump in new loans in January by pressing banks to support the stimulus program.

The stimulus package announced in November spans spending through 2010 on public housing, railways, highways, airports, power grids and reconstruction work after last year’s earthquake in Sichuan province.

The Communist Party’s Politburo pledged last month a “massive” increase in government investment this year and Standard Chartered Bank Plc said this week that the stimulus package could be doubled.

Bridge, Rail Links

The central government spent 100 billion yuan in the fourth quarter of last year and will add 130 billion yuan this quarter. A railway between Shanghai and Nanjing, a Xiamen-Zhangzhou cross-sea bridge, and a high-speed rail link between Datong and Yucheng in Shaanxi are among the projects, according to a summary by Standard Chartered Bank Plc.

Besides spurring investment, policy makers need to revive a sagging property market and boost consumption as the global recession smothers demand for exports of toys, textiles and electronics.

The fastest contraction in the U.S. since 1982 is taking a toll on Chinese exporters including Lenovo Group Ltd., the world’s fourth-biggest personal-computer maker, which reported its first quarterly loss in three years and cut jobs.

With 20 million rural laborers who previously found jobs in cities now unemployed, and 7.1 million college graduates seeking work, authorities are alert to the danger of social unrest.

“Mass incidents” may jump this year, the official Xinhua News Agency’s Outlook Magazine reported in January, employing communist code for riots and civil disorder. Last month, a clash between police and about 1,000 protesting workers from a textile factory in Zigong City, Sichuan province, left six demonstrators injured, rights group Chinese Human Rights Defenders reported.