New Chinese stimulus package fails to materialise

The widespread belief that Chinese prime minister Wen Jiabao would unveil a second stimulus package in his address to the National People's Congress proved unfounded, as no such measures were announced (See: China's budget records highest fiscal deficit in six decades)

However, Jiabao said the government was still aiming for eight per cent growth this year backed by the earlier massive stimulus package. He also gave further details of the $593-billion package that China is investing to try to make up for the fall in its exports.

Jiabao said the global crisis continues to spread and get worse, and demand in continuing to shrink. But China would ride out the recession, he said, repeating the country's target of eight per cent GDP growth. That is the minimum the leadership thinks is needed to avoid social unrest because of unemployment.

Most of China's stimulus package will focus on infrastructure, but there is also an increase in social spending to try to persuade the Chinese public to spend rather than save.

Yesterday, there was widespread belief that the stimulus package could even be doubled. But now, many investors and analysts believe that China does not really need a second package as this stage, as it seems on the cusp of a recovery.

New domestic-currency bank loans shot up to a record 1.6 trillion yuan in January. Liu Mingkang, the top banking regulator, said that they probably exceeded 800 billion yuan in February, which is still a very high figure.

Jiabao himself said last week that he had seen initial positive results from the stimulus.

He said the 2009 deficit would reach 950 billion yuan, or just under three per cent of GDP – China's largest shortfall in history, according to HSBC. Still, that is far less than the deficit in the United States, proposed at 12.3 per cent of GDP.