CHINESE NEWSPAPER: China Needs To Be More Prepared For Economic Shocks

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BEIJING (Reuters) – China should ready plans to respond to near term risks in an economy facing significant downward pressure, but keep the broad policy focus on longer term structural adjustments, the official People’s Daily said in a front page editorial on Friday.

The Communist Party’s mouthpiece newspaper said the government had the flexibility to do both things as current growth levels were within the expected range.

“For some uncertain factors that might bring new shocks to the economy we should be prepared in the short-term – but keep making long-term plans,” the editorial said, without detailing the risks it envisaged.

Evidence has mounted in recent weeks that China’s economy is struggling to overcome strong global headwinds, with economists’ expectations of a second half pick-up being pushed steadily further back, leading some to say that the government’s full year growth target of 7.5 per cent may be in jeopardy.

Around a dozen local and city governments have been reported by Chinese media as announcing huge, multi-year investment plans in recent weeks, though they broadly seem to be restatements of official five-year plans, not new spending.

Nevertheless they have fuelled market talk that China is readying a giant government spending scheme to lift an economy mired in its worst downturn in three years, forecast to see growth cool to a 13-year low of 8 per cent in 2012.

China rescued its economy from a prolonged global recession in 2008/09 by rolling out a 4 trillion yuan ($635 billion) investment stimulus.

But that left 10.7 trillion yuan worth of debt racked up by local governments to meet obligations under the national plan, drove a frenzy of speculation in real estate and was a key factor in a surge in inflation to a three-year high of 6.5 per cent in July 2011.

Economists fear it also likely added to a swathe of inefficient production capacity that China was already struggling to turn around.

Premier Wen Jiabao has said repeatedly that the government’s current policy objective is to stabilise growth.

Wen’s adherence to a programme of “fine-tuning” economic policies since October of last year, and his favouring of fast-tracking projects and spending already approved over outright additional fiscal stimulus, is seen by analysts as a sign that Beijing is determined to keep speculative forces contained.

The People’s Daily acknowledged the risk factors and said they should not be ignored, but added that early signs of stabilisation in growth were not evidence enough that the worst had passed for the economy.

“We do not think that signs of the economy stabilizing means the most difficult time has passed and falling inflation does not mean we should sit back and relax inflation controls,” the paper said. (Reporting by Xiaoyi Shao and Koh Gui Qing; Editing by Nick Edwards)

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