Wen says China faces possible new economic worries

[August 24, 2009]  BEIJING (AP) -- China's top economic official warned the country faces new problems and said Beijing will stick to its stimulus because the recovery lacks a solid foundation, according to comments reported Monday.

Premier Wen Jiabao cautioned against being "blindly optimistic" despite improvements in the economy, according to a statement on the Cabinet's Web site.

The economy "still faces many new difficulties and problems," Wen was quoted as saying during a visit to southeastern China that ended Monday. "There are still a lot of unstable and uncertain factors ahead and the economic situation ahead is still very grave, although both the world economy and the national economy are making positive changes now."

The premier cautioned that the effects of some government measures might fade while others would take time to show results, the Cabinet statement said. It gave no other details of potential problems.

Wen's comments echoed his repeated warnings against complacency and assurances that easy credit will continue. But they clashed with increasing optimism among analysts who say China is making dramatic progress in emerging from its slump.

Wen promised to stick to policies meant to boost domestic demand, maintain easy credit and promote efficiency. Beijing is in the midst of a two-year, 4 trillion yuan ($586 billion) effort to boost domestic consumption by pumping money into the economy through higher spending on building highways and other public works.

Driven by that spending, economic growth accelerated to 7.9 percent in the latest quarter, up from the previous quarter's 6.1 percent, but Wen and other officials have called for continued vigilance. They say weak corporate profits and other areas show a recovery is not firmly established.

Many analysts expect China to be the first major economy to emerge from the sharpest global downturn since the 1930s.

The strongest improvement has been in stimulus-financed areas such as construction. Most of the early benefits have gone to state-owned companies, while a private sector recovery has lagged. Analysts say more gains are still dependent on stimulus spending.

Chinese stock markets have declined this month on concern Beijing might curb record bank lending that financed the stimulus and ignited a boom in stock prices.

Bank lending plunged in July to 355.9 billion yuan ($51.9 billion), down sharply from June's record 1.5 trillion yuan ($223 billion). Regulators had previously said borrowing would slow once companies obtained financing for the latest round of projects.

The government's growth target for the year is 8 percent, while private sector forecasts range from 7 percent to 9.4 percent.

"The foundation of the economic recovery is not stable, not firm and not balanced, and we certainly cannot be blindly optimistic," Wen was quoted as saying during the three-day trip to Zhejiang province south of Shanghai, according to the statement.

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On the Net:

Chinese Cabinet: http://www.gov.cn/

[Associated Press; By JOE McDONALD]

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