Report: Wen says China considering new stimulus

[February 02, 2009]  BEIJING (AP) -- China is considering new steps to boost cooling growth, its top economic official said in comments published Monday, as new data showed manufacturing shrinking further despite surging government spending.

"We may take further new, timely and decisive measures. All these measures have to be taken pre-emptively before an economic retreat," The Financial Times quoted Premier Wen Jiabao as saying in an interview in London.

The report gave no details of possible new steps. The government is rolling out a 4 trillion yuan ($586 billion) package unveiled in November in hopes of shielding China from the global slowdown through heavy spending on public works projects.

Wen said last month there were signs the stimulus was having an effect. But the latest data suggest China faces more pain, including a government report Monday that some 20 million workers have lost their jobs due to the global crisis.

Also Monday, brokerage CLSA said its purchasing managers index -- based on a survey of some 400 companies -- showed manufacturing shrank in January for a sixth month. The PMI stood at 42.2 on a 100-point index where numbers below 50 show activity contracting. That was up from December's 41.2 but the third-worst month on record.

"The fact that the PMI has bottomed is encouraging but should not be taken as evidence of recovery," CLSA economist Eric Fishwick in a statement. "Without an early move in the PMI back above 50 a further fall in China's headline growth indicators looks inevitable for the current quarter."

Economic growth fell in the fourth quarter to 6.8 percent compared with a year earlier, down from 9 percent the previous quarter, according to the government.

The economy got a boost from spending on shopping and travel during last week's Lunar New Year festivities, the country's biggest family holiday and a period when retailers, airlines and others make a big share of annual sales.

Retail spending during the weeklong holiday rose 13.8 percent compared with the same period last year, the Commerce Ministry reported. That was down from December's 17.4 percent monthly expansion in sales. And holiday sales in 2008 were dampened by severe winter storms, setting a low base for this year's growth.

Consumer spending should weaken further in coming months, said Xu Xiaofang, an analyst for Guotai Junan Securites in Beijing.

"No matter what, people spend a lot on the Lunar New Year. They would rather be frugal after the festival instead," Xu said.

The plunge in global consumer demand has battered Chinese exporters, causing a wave of factory closures and layoffs.

An estimated 20 million people, or 15 percent of China's 130 million migrant workers, have lost their jobs, said Chen Xiwen, director of the Central Rural Work Leading Group, at a news conference.

The ruling Communist Party is alarmed at the possibility of unrest if employment rises and is pressing companies to avoid more layoffs.

Wen, the premier, said Beijing will try to keep growth at about 8 percent this year, the Financial Times reported. But analysts have cut growth forecasts to as low as 5 percent, down from 2007's blistering 13 percent rate.

Economists say Beijing's strong finances and low debt give it leeway to spend still more to reverse the economic slump.

Spending on the stimulus and relief work for last year's devastating earthquake in China's southwest caused the national budget to slip into deficit, the Finance Ministry said Monday.

The 2008 deficit was 111 billion yuan ($16.2 billion) as spending soared to 22.6 percent above the budgeted level, the ministry said. That gap was modest compared with deficits in the United States and other major economies.

Wen was on a European tour that included stops in Germany, Spain and at European Union headquarters in Brussels.

He said Beijing intends to keep its currency, known as the yuan or renminbi, stable at a "balanced and reasonable level," though declined to rule out a devaluation, the Financial Times said on its Web site. A devaluation would make Chinese goods cheaper abroad and help struggling exporters whose revenues have plunged.

"If we have a drastic fluctuation in the exchange rate of the renminbi, it would be a big disaster," Wen was quoted as saying.

[Associated Press; By JOE McDONALD]

Associated Press researcher Bonnie Cao in Beijing contributed to this report.

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