China ramps up spending to spur economy, central bank sees stable policy

Wed Jun 11, 2014 2:47am EDT
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BEIJING (Reuters) - China's central bank said on Wednesday it will keep monetary policy steady in 2014, even as the finance ministry said fiscal spending had surged nearly 25 percent in May from a year earlier, highlighting government efforts to energize the slowing economy.

Total fiscal spending in May rose to 1.3 trillion yuan ($208.75 billion), quickening sharply from a 9.6 percent rise in the first four months of the year.

The higher spending comes as the world's second-biggest economy got off to a soft start to the year, growing at its slowest pace in 18 months in the first quarter.

The economy has since shown some signs of stabilizing, but the recovery appears patchy and analysts do not rule out further stimulus measures, especially if the cooling property market starts to rapidly deteriorate.

Fiscal revenues rose 7.2 percent in May from the same month last year, slowing from a 9.2 percent rise in April. The ministry attributed the slower revenue growth in May to the slowdown in the economy and falling property transactions.

China's central bank has been describing its policy stance as "prudent" in recent years, even when it is clearly loosening or tightening the policy reins. At the moment, for instance, authorities are in a gentle easing mode to counter the cooldown in the world's second-biggest economy.

The People's Bank of China said the outlook for external demand was uncertain, capital flows were volatile, and financial risks were weighing on the economy.

The PBOC's pursuit of stable monetary policy contrasts strongly with the finance ministry's mini-stimulus, which saw total fiscal spending rise 24.6 percent to 1.3 trillion yuan ($208.75 billion) in May as it brought forward spending sharply, from growth of 9.6 percent in the first four months of the year.

Stimulus measures taken so far by Beijing include speeding up the construction of railway projects and public housing, as well as orders to local governments to fast-forward their fiscal spending to prime the economy for growth.   Continued...

A clerk counts Chinese 100 yuan banknotes at a branch of China Construction Bank in Hai'an, Jiangsu province June 10, 2014. REUTERS/China Daily