China unveils $586 bn plan; joint effort urged

China unveils $586 bn plan; joint effort urged
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First Published: Mon, Nov 10 2008. 12 00 AM IST
Updated: Mon, Nov 10 2008. 12 00 AM IST
Madrid: Emerging economies will take new measures to tackle the global economic slowdown, finance ministers at a meeting of the Group of 20 nations in Sao Paulo said, as China unveiled a $586 billion package aimed at spurring growth in the world’s fourth largest economy.
Brazil, Russia, India and China, the so-called Bric nations, plan coordinated measures to increase trade and capital flows between their economies, Russian finance minister Alexei Kudrin said in an interview.
Beijing on Sunday announced a $586 billion, or Rs28 trillion, stimulus plan to boost growth in the world’s fastest growing major economy. The funds, equivalent to almost one-fifth of China’s $3.3 trillion gross domestic product last year, will be used by the end of 2010, the Beijing-based state council said on its website. China will adopt a “pro-active fiscal policy” and pursue a “moderately loose” monetary policy, it said.
The package, 100 billion yuan ($14.65 billion) spending of which is earmarked this quarter, will go towards low-rent housing, infrastructure in rural areas, as well as roads, railways and airports, the state council said. The government will also allow tax deductions for purchases of fixed assets such as machinery to stimulate investment, a move that will reduce companies’ costs by an estimated 120 billion yuan. Grain purchase prices and subsidies for farmers will be raised, as will allowances for low-income urban households. The government also scrapped loan quotas to help boost lending to small businesses.
The stimulus plan may boost China’s economic growth by 2 percentage points next year, said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. UBS AG and Credit Suisse AG before Sunday’s announcement forecast expansion of no more than 7.5% for next year, which would be the slowest in nearly two decades.
India, Russia and Brazil have already injected funds into commercial banks and South Korea last week unveiled a 14 trillion won ($10.8 billion) fiscal stimulus plan.
“This is a global crisis and demands global solutions,” Brazilian President Luiz Inacio Lula da Silva told delegates on Saturday. “The participation of the developing world is essential.”
Finance ministers and central bankers from the G-20 are laying the groundwork for a 15 November heads-of-state summit in Washington. The ministers’ meeting ends on Sunday. The G-20 is ready to act “urgently” to bolster growth as the world’s leading industrialized economies seek to battle the threat of recession, a draft of a statement to be released later on Sunday in Sao Paulo says.
“We stand ready to urgently take forward work in action agreed by our leaders to restore and maintain financial stability and support global growth,” the group said in the draft statement seen by Bloomberg News. “We welcome the bold and decisive measures taken in a number of countries to stabilize financial markets and restore the flow of credit.”
The International Monetary Fund (IMF) is forecasting that the US, Japan, the euro region and the UK economies will all contract next year in their first simultaneous recession since World War II. With slower growth damping inflationary pressures, central banks are likely to cut borrowing costs further, Canadian finance minister Jim Flaherty said.
Canada’s central bank joined the US Fed, the European Central Bank and the Bank of England in an unprecedented coordinated interest rate cut on 8 October after the collapse of Lehman Brothers Holdings Inc. sent credit markets into seizure.
The Reserve Bank of India on 1 November lowered its main interest rate for the second time in two weeks while China cut its key interest rate for the third time in two months on 29 October.
Calls from IMF and UK Prime Minister Gordon Brown for coordinated fiscal stimulus will probably fail to win backing from the group because some countries are concerned about increasing public spending, Flaherty said. “Ideally that would be so—it’s just not likely to happen,” Flaherty said. “Some countries feel that they are more constrained than others.”
China’s willingness to stimulate its economy may play an important role in supporting world growth, Flaherty said. China accounted for 27% of global economic growth last year, more than any other nation, the International Monetary Fund said in a April report.
Josh Goodman, Shamim Adam, Jens Gould, Svenja O’Donnell, Halia Pavliva, Christian Vits, Ye Xie, Meera Louis in Sao Paulo and Li Yanping in Beijing contributed to this story.
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First Published: Mon, Nov 10 2008. 12 00 AM IST
More Topics: China | Financial crisis | G-20 | Brazil | Russia |