China’s ‘Stimulus Package 2’ May Help Economy Top 8% Growth

By Kevin Hamlin

Nov. 24 (Bloomberg) -- Plans for a second Chinese stimulus package show the government’s determination to sustain growth and may help the economy expand more than 8 percent for each of the next two years, Citigroup Inc. said.

The National Development and Reform Commission, the nation’s top economic planning agency, proposes income-tax cuts, salary increases and larger housing subsidies, Chinese media reported yesterday.

The new proposals show “the government is determined to maintain strong growth,” Huang Yiping, chief Asia economist at Citigroup in Hong Kong, said in an e-mailed note today. “A stable Chinese economy should be positive for the global and regional economies.”

China this month announced $586 billion of spending through 2010 to try to prevent a deeper slowdown in the world’s fourth-biggest economy as export demand wanes and the property market falters. The nation faces a “formidable” challenge in preventing a slump, Mu Yong, the commission’s vice chairman, said on Nov. 14 in Beijing.

China’s economy grew 9 percent from a year earlier, the slowest pace in five years, in the third quarter. This quarter’s expansion may be as little as 5.8 percent, according to Credit Suisse AG. Those figures are down from last year’s 11.9 percent growth.

The commission’s plan may be discussed at the government’s Central Economic Work Conference early next month, the Economic Observer newspaper reported yesterday. Citigroup called the proposal “Stimulus Package 2.”

Stock-Market Spending

The measures include injecting as much as 400 billion yuan ($59 billion) into the nation’s stock market to boost confidence, the newspaper said, without providing details. The CSI 300 Index of stocks has tumbled 65 percent this year

Other proposals include doubling housing subsidies and giving money to low-income families, the Beijing-based newspaper said, citing people involved in discussions of the plan.

Also possible are cuts in charges for services such as telecommunications, tourism and car parks, the newspaper said in an edition released yesterday and dated today. It didn’t give a total value for the package.

To spur the economy, the central bank has already cut interest rates three times from mid-September, reducing the one-year lending rate to 6.66 percent, and Governor Zhou Xiaochuan flagged on Nov. 9 that more reductions may be on the way.

To contact the reporters on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net