Increased spending by China may create investment boom

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Thursday, 05 March 2009 09:26

China’s investment plan may double over the next three years, thus possibly triggering an economic boom similar to the one created by the late Deng Xiaoping in the early 1990s.
The increased investment might reach as much as eight trillion yuan from the original estimate of four trillion yuan ($585bn). This figure would arise from additional programmes initiated by both central and provincial governments.

China’s growth has slowed during the past 18 months due to a fall in export demand and a slowing property market. The consequence is pressure on the government to add to increased spending and the interest-rate cuts that took place last year. The increased spending and a surge in bank lending during the past few months should fuel growth of at least eight percent during 2009, despite the global economic downturn. This figure could easily be maintained during the forthcoming ten years, due to the country’s strong fiscal situation and its high level of foreign reserves and savings. In addition, an estimated 600 million rural dwellers are expected to migrate to the cities during this period.

Deng Xiaoping’s 1992 tour of southern China was a springboard for several years of rapid growth.
The value of China’s new loans in January was more than double the record set a year earlier, when the central bank had encouraged lenders to back the government’s economic stimulus projects.