Economy

Stimulus exit a long way off

By Wang Xiaotian (China Daily)
Updated: 2010-06-05 08:59

Analysts say private investment still unable to shore up economy

BEIJING - China's exit from economic stimulus remains far away as private investment and consumption are currently unable to shore up the economy, said analysts.

En route to the G20 finance ministers' meeting in South Korea, Canadian Finance Minister James Flaherty said on Thursday in Beijing that economies across the globe should start withdrawing stimulus measures.

But many Chinese economists do not agree.

Jia Kang, director of the Institute of Research at the Ministry of Finance, said that the nation should not consider any specific measures to end the stimulus until the private sector gets stronger.

"Currently China's economic growth still relies on policy boosts, but public investment mainly supported by the government is far from enough if we wish to have a steadily expanding economy," said Jia.

He called for immediate measures to stimulate private investment and consumption. "Now China must pay more attention to encouraging private investment," he told China Daily.

Dong Xian'an, chief economist at Industrial Securities, said that domestic consumption could only become a reliable pillar of the Chinese economy once substantial improvements were made to social welfare and affordable housing.

Analysts said the tightening policies targeted at the real estate sector since April may accelerate the decline in fixed-asset investment and add an element of uncertainty to the country's economic growth until the private sector plays a more significant role.

In May, China's manufacturing index dropped 1.8 points to 53.9 from 55.7 in April after investment growth, mainly spurred by government investment, shrank 4.4 percentage points from January to April compared with the same period last year.

Lu Zhengwei, the senior economist of Industrial Bank Co Ltd, said the figure shows that private investment needs a further boost.

"The decision-makers are in a dilemma now. To solve the problem, the State Council has called for the opening of more areas of the economy to private capital," said Zhou Mingjian, an analyst with Pacific Securities, referring to a document released on May 13 to encourage private investment in fields such as infrastructure, healthcare and education.

Since the entrance of private capital would erode the influence of some monopoly groups, opposition would be very strong if there were no further detailed regulations.

Klaus Gerhaeusser, director-general of the Asian Development Bank's East Asia department, told China Daily private investment is not necessarily concentrated in the construction sector, but in a wider range of fields such as operations, management and the maintenance of investment projects in China.

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"Traditionally, in many countries infrastructure is supported by public investment," he said, but partnership between the public and private sectors offers a better solution.

But he said that, as a macroeconomic decision, the timing of China's stimulus exit should not depend on whether the private sector is fully ready to take up the slack, but should be based on external factors.

"The stimulus package was mainly public investment in order to fill the demand gap which emerged because of the country's declining exports and trade."

Last week, Premier Wen Jiabao said in Tokyo that China will not pull back from economic stimulus measures due to uncertainties in the global economy, which may slip into a double-dip recession.