By Jason Simpkins
Managing Editor
Money Morning
Chinese Premier Wen Jiabao today (Thursday) outlined a number of fiscal and budgetary measures to stimulate the economy and maintain an 8% growth rate. However, Premier Wen did not introduce any new spending measures as many investors had expected he would.
Addressing the nearly 3,000 delegates of the National People's Congress, Wen said the central government would boost spending on infrastructure, “social safety net” programs, and the military. But he did not specify any new spending on top of the $585 billion stimulus package announced in November.
Spending on social programs will increase by 17.6% to about $6.4 billion as the government works to raise the quality of life for its citizens, many of which have been disenfranchised by the global downturn. A recent government survey showed that slightly more than 15% of China’s 130 million migrant workers - about 20 million people - have lost their jobs.
That figure is double the previous estimate by the Ministry of Human Resources and Social Security, which said in December that up to 10 million migrants lost their jobs in 2008 due to the financial crisis. But analysts say the actual number of unemployed migrant workers is probably closer to 26 million.
"Social stability is definitely of concern to the government; it's always been the top concern," Tao Wang, an economist for UBS Securities in Beijing, told the New York Times. "Everything from delivering growth to holding down unemployment, it's all about stability."
So far, China has relied heavily on government spending on infrastructure projects such as roads, bridges, and dams, to create jobs and grow the economy in lieu of exports. Analysts have warned, however, that domestic consumption is the key to reliable and sustained growth.
Nevertheless, Wen outlined $132 billion in spending on major public works projects, including low-income housing and energy conservation, The Times reported.
Increases in spending will drive the budget deficit this year to about 3% of China's economy, a modern record. By comparison, the U.S. budget deficit equates to more than 12% of national gross domestic product (GDP).
Wen officially set a target economic growth rate of 8% for this year, though some analysts anticipate growth could slow to 6.5% or 7%. China's economy expanded 9% last year, down from 13% in 2007.
"It needs to be stressed that in projecting the GDP growth target at 8%, we have taken into consideration both our need and ability to sustain development in China," Wen said.
News and Related Story Links:
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New York Times:
China Outlines Ambitious Plan for Stimulus
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Money Morning:
China Considers Expanding Stimulus to Combat Unemployment