China should prepare for economic uncertainty: paper

Thu Aug 23, 2012 11:46pm EDT
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BEIJING (Reuters) - China should ready plans to respond to near term risks in an economy facing significant downward pressure, but keep the broad policy focus on longer term structural adjustments, the official People's Daily said in a front page editorial on Friday.

The Communist Party's mouthpiece newspaper said the government had the flexibility to do both things as current growth levels were within the expected range.

"For some uncertain factors that might bring new shocks to the economy we should be prepared in the short-term - but keep making long-term plans," the editorial said, without detailing the risks it envisaged.

Evidence has mounted in recent weeks that China's economy is struggling to overcome strong global headwinds, with economists' expectations of a second half pick-up being pushed steadily further back, leading some to say that the government's full year growth target of 7.5 percent may be in jeopardy.

Around a dozen local and city governments have been reported by Chinese media as announcing huge, multi-year investment plans in recent weeks, though they broadly seem to be restatements of official five-year plans, not new spending.

Nevertheless they have fuelled market talk that China is readying a giant government spending scheme to lift an economy mired in its worst downturn in three years, forecast to see growth cool to a 13-year low of 8 percent in 2012.

China rescued its economy from a prolonged global recession in 2008/09 by rolling out a 4 trillion yuan ($635 billion) investment stimulus.

But that left 10.7 trillion yuan worth of debt racked up by local governments to meet obligations under the national plan, drove a frenzy of speculation in real estate and was a key factor in a surge in inflation to a three-year high of 6.5 percent in July 2011.

Economists fear it also likely added to a swathe of inefficient production capacity that China was already struggling to turn around.   Continued...

An investor takes a nap at a brokerage house in Wuhan, Hubei province June 18, 2012. REUTERS/Stringer