China's stimulus plan sets high bar

But China's economic growth has slowed sharply this year, to an annual pace of 9% in the third quarter compared with nearly 12% for all of last year. Tens of thousands of Chinese factories have closed this year, and more are at risk as export orders from the United States and elsewhere shrink. China's real estate market has also been sagging, damping investments and consumer spending.

Before Sunday's announcement, some analysts had predicted that China's economic growth would fall to as low as 6% next year -- a disturbing prospect for Chinese officials because of the threat of rising joblessness and the risk of social instability. Analysts said the stimulus package would probably lift growth next year to 8% or higher.

"This broad-based fiscal stimulus program will emerge as the government's front line of defense against an excessive economic slowdown," said Jing Ulrich, managing director of China equities at JPMorgan Chase in Hong Kong.

Likening the package to President Franklin D. Roosevelt's New Deal during the Great Depression, Ulrich said higher social-welfare spending and rural reforms would stimulate private consumption.

In the U.S., Democratic leaders of Congress are looking to approve a stimulus package of about $60 billion to $100 billion. But as in other countries, officials also are concerned about increased public spending at a time when fiscal budgets are under strain.

That's not a concern for China, with its $2 trillion in foreign reserves and a reported fiscal surplus of $175 billion in the first half of this year. The package is much larger than Beijing's fiscal injection during the Asian financial crisis in 1997.

"China can afford massive fiscal stimulus," Weinberg said. He added that the biggest windfall for China from this package was political as it showed the nation's capacity to contribute to global economic stability.

China "will demand a more equal footing after this [summit] meeting," Weinberg said, noting that China has thus far been a minor player in the power structure of organizations such as the International Monetary Fund and the World Bank.

Beijing's stimulus package is the largest of a series of steps taken recently to spur the nation's growth. Previous measures have included interest-rate cuts, tax rebates for exporters and reduction of reserve requirements for banks so more money could be made available for lending. China also previously has pledged substantial funds for various infrastructure and rural-development projects.

It wasn't clear whether previously committed money was included in the new stimulus amount. The announcement Sunday indicated that China would spend about $58.6 billion in the current quarter, with additional funds to be used over the next two years to finance programs in 10 major areas, including water, electricity, technological innovation and rebuilding from disasters such as the May 12 earthquake.

Ulrich said Beijing had huge infrastructure projects planned from now to 2020.

"Despite the weakening economy and slowing tax revenue in recent months," she said, "the government has every political incentive to boost spending in priority programs."

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don.lee@latimes.com