China’s Economy May Recover First From Global Slump

By Irene Shen

March 23 (Bloomberg) -- China’s economy may be the first to recover from the global recession as a 4 trillion yuan ($585 billion) stimulus package takes effect, a senior government researcher said.

“China has the ability to become the first in the world to step out of the crisis and keep stable growth for the mid and long term,” Zhang Yutai, director of the Development Research Center of the State Council, said in a live broadcast from the China Development Forum in Beijing yesterday.

The stimulus plan, which runs through 2010 and includes spending on roads, railways and houses, may add as much as 1.9 percentage points to this year’s expansion, Zhang said. Vice Premier Li Keqiang reaffirmed the government’s goal of 8 percent growth, saying some industries “have seen signs of recovery.”

The world’s third-biggest economy is showing “early signs” of stabilizing as government-backed investment counters a slump in exports, the World Bank said March 18. China is targeting an expansion even as world trade collapses and the global economy faces its first contraction since World War II.

Zhang’s comments echoed a state media report last month that quoted Premier Wen Jiabao as saying that China was likely to be the first major economy to recover.

The research head’s prediction of the likely contribution from stimulus spending was lower than some economists’ estimates. “Government-influenced” spending will account for three- quarters of the expansion this year, according to a World Bank report last week. Standard Chartered Bank says stimulus will contribute 3 percentage points.

Unemployment, Property

China faces tumbling exports, rising unemployment, and a sagging property market. Millions of migrant workers have lost their jobs as declining overseas orders force factories to scale back production or shut.

The World Bank cut last week its forecast for China’s growth this year to 6.5 percent from a previous 7.5 percent. The Organization for Economic Cooperation and Development said it will reduce its estimate this month to between 6 percent and 7 percent as the global slump deepens. The International Monetary Fund sees a 6.7 percent expansion.

Gross domestic product expanded 6.8 percent in the fourth quarter, the weakest pace in seven years. The economy grew 9 percent for all of last year, down from 13 percent in 2007.

Lending and spending have surged as the stimulus package kicks in. Urban fixed-asset investment rose 26.5 percent in the first two months of 2009 and bank loans quadrupled in February.

“China has the potential to further boost domestic spending,” Zhu Zhixin, vice director of the National Development and Reform Commission, said at the forum.

Premier Wen said on March 13 that China has “adequate ammunition” to revive the economy and can add to the stimulus package at any time.

The government is planning a record 950 billion yuan budget deficit this year. The risk posed by the deficit is “under government control,” Wang Jun, vice minister of finance, said at the forum.

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net