Premier Wen Jiabao said China would ramp up deficit spending this year to hit its all-important 8 percent growth target but did not announce an increase in an already-huge two-year economic stimulus plan that markets had craved.
In his annual work report on Thursday to the National People's Congress, the largely ceremonial parliament, Wen said the 2009 growth goal was realistic despite a deepening global financial crisis.
It needs to be stressed that in projecting the GDP growth target at 8 percent, we have taken into consideration both our need and ability to sustain development in China, he said.
As long as we adopt the right policies and appropriate measures and implement them effectively, we will be able to achieve this target.
Global markets soared on Wednesday on talk that Wen would add to the 4 trillion yuan ($585 billion) stimulus plan unveiled in November to head off a rise in unemployment that could threaten the social stability prized by the ruling Communist party.
Eight percent growth is widely thought to be the minimum needed to hold down the jobless rate.
Wen said China's budget deficit this year -- 950 billion yuan -- would jump to almost 3 percent of national income from 0.4 percent in 2008. By comparison, the United States is planning for a deficit of 12.3 percent of GDP this year.
Investment spending, on everything from railways to affordable housing, will double; outlays on health care will rise 38 percent; and spending on the social safety net and employment will go up 22 percent, according to the 2009 budget.
But Wen announced no increase in the headline price tag of November's pump-priming package to revive the world's third-largest economy, which has been hit by a slump in demand for its exports and a downturn in its property market.
KEEPING THE POWDER DRY
Economists said they still expected Beijing to boost spending if need be.
Obviously they're looking at a global economy that every day gets worse, so they might have decided to keep the extra spending in their pockets, said Stephen Green, head of China research at Standard Chartered Bank in Shanghai.
Green noted that the first investment projects to be financed under the stimulus plan were only now being rolled out. So maybe we need to wait until the second quarter and see how it pans out. They have more ammunition if they need it, he said.
Jia Kang, a researcher at the Ministry of Finance, agreed.
China may have to widen the fiscal deficit further if the economic situation continues to be weak in the second quarter, Jia told reporters.
Shanghai stocks shrugged off the lack of extra stimulus. The main index, after a volatile session, closed up 1.04 percent.
Balancing optimism with caution, Wen said China faced unprecedented difficulties and challenges due to the worldwide financial crisis, which he said is still getting worse.
Demand continues to shrink on international markets; the trend toward global deflation is obvious; and trade protectionism is resurging. The external economic environment has become more serious, and uncertainties have increased significantly.
But he said China's prospects were as bright as ever. Until growth slowed to 9 percent in 2008, China had enjoyed double-digit growth for the previous five years.
Neither the fundamentals of China's economic and social development nor its positive long-term trend has changed.
Bank lending has surged in response to the stimulus plan and surveys of manufacturers have perked up. But exports have collapsed and a recovery in steel prices has gone into reverse, suggesting to economists that China is not out of the woods yet.
Wen said his government would seek to prevent any threats from social unrest, which officials have warned could flare up as workers and farmers confront unemployment and income cuts.
Officials estimate about 20 million migrant workers have already lost their jobs due to the closure of export-dependent factories and a downturn in the construction industry.
We will improve the early warning system for social stability to actively prevent and properly handle all types of mass incidents, he said, using the government's euphemism for riots, protests and demonstrations.