China To Keep Credit Taps Open Despite Big Jump In Fiscal Spending

 @gmorcroftg.morcroft@ibtimes.com on June 11 2014 12:36 PM
Jacob Lew in China
U.S. Treasury Secretary Jacob Lew (L) talks with Chinese Premier Li Keqiang during a meeting at the Great Hall of the People in Beijing, on May 13, 2014. Reuters/Andy Wong

China on Wednesday released data showing that government spending increased 25 percent in May from a year earlier, and its central bank said it will hold monetary policy steady, suggesting more big spending in an effort to boost faltering growth.

China said its fiscal May spending rose to 1.3 trillion yuan ($208.75 billion), “quickening sharply from a 9.6 percent rise in the first four months of the year,” according to Reuters.

The comments varied a bit from Monday, when the Central Bank said it was speeding up interest rate liberalization and plans to establish deposit insurance for banks.

“The central bank said on Monday that it will cut the reserve requirement ratios -- the level of reserves banks must hold -- for those that have sizable loans to the farming sector and small and medium-sized firms, a move to support the economy the government had flagged in May,” Reuters reported.

This week’s moves followed actions in the past few weeks aimed at perking up China’s economic growth.

“There is little doubt that China’s growth has been losing momentum in recent years.The past few quarters have witnessed clear signs of rising inventories, slumping property sales, producer price deflation, declining consumer price inflation, weakening corporate earnings, slowing investment and anemic industrial production. Fortunately, private consumption is still holding up,” Guonan Ma, a writer at Bruegel.org, wrote on Wednesday.

China’s economic growth is still at a level that’s the envy of Western nations, but it's slowing at a time when the U.S., the world’s largest economy, is picking up pace.

And global economic growth is expected to dip this year, following the fiercely cold winter that plagued the United States and turbulence in Ukraine and the world’s financial markets.

The World Bank on Tuesday said it reduced its global growth forecast to 2.8 percent this year, down from a January projection of 3.2 percent, Bloomberg News reported.

The U.S. forecast was cut to 2.1 percent from 2.8 percent, and outlooks for Brazil, Russia, India and China also fell -- a sign that emerging economies aren’t moving fast enough or investing sufficiently in domestic structural reforms, which are needed to accelerate economic expansion, according to the Washington-based institution. 

Andrew Burns, the lead author of the World Bank report, told the Financial Post that economies like China’s need to pick up economic growth or face even more woes when the U.S. moves from its protracted period of historically low interest rates.

“Our advice to these countries is ‘listen, you’ve got a window here of a year, let’s see what we can do to reduce those vulnerabilities between now and then so that when it does come, you don’t get caught up in the overall problem,”  Burns told the Financial Post.

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