Bloomberg News

Wen Says Investment Now Key to Stabilizing China Growth: Economy

July 11, 2012

Chinese Premier Wen Jiabao

Chinese Premier Wen Jiabao. Photographer: Nelson Ching/Bloomberg

Premier Wen Jiabao said promoting investment growth is the key now to stabilizing China’s economic expansion, signaling officials may boost spending to counter a slowdown that probably extended into a sixth quarter.

Stabilizing 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 yesterday. “Growth-stabilizing 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 percent 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 “stabilizing 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 percent at the 11:30 a.m. local-time break. The MSCI Asia Pacific Index declined 0.2 percent, 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 summarized discussions with economists and company executives held July 9-10.

Wen didn’t specify what level of growth is necessary. In March, he set a target of 7.5 percent for gross domestic product expansion this year, the first time since 2004 the government had a goal below 8 percent. Annual targets are routinely surpassed and are more indicative of the direction of policy. Growth last year of 9.2 percent compared with the 8 percent goal.

The premier said yesterday 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 yesterday. A statistics bureau report the day before showed consumer inflation eased to 29-month low last month. The government is set to release figures July 13 for second-quarter gross domestic product, investment and industrial production.

“The domestic and external economic situations are relatively complicated,” Wen said yesterday. He cited “downward pressure on the economy,” after being quoted 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.

Yesterday’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 today, Germany is scheduled to report its consumer price index for June while Russia will release weekly inflation data.

The U.S. Federal Reserve will release minutes from its June 19-20 meeting, where policy makers expanded their Operation Twist program to extend the maturities of assets on the central bank’s balance sheet.

Separately yesterday, 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 percent because of slowing economic growth and higher jet-fuel prices, according to a statement yesterday by the Guangzhou- based company.

--Zheng Lifei. With assistance from Patrick Harrington in Tokyo. Editors: Scott Lanman, James Mayger

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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