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China approves $157 billion U.S. in infrastructure spending

china economy

STRINGER/CHINA/REUTERS China gave the green light for 60 infrastructure projects this week as it looks to energize an economy mired in its worst slowdown in three years, fuelling hopes that the world’s growth engine may get a lift from the fourth quarter. REUTERS

SHANGHAI—China has given the green light for 60 infrastructure projects worth more than $ 150 billion (U.S.) as it looks to energize an economy mired in its worst slowdown in three years, fuelling hopes the world’s growth engine may get a lift from the fourth quarter.

Shares and steel futures contract prices jumped on the plans to build highways, ports and airport runways which are among the most ambitious unveiled in China this year.

The move signals the government’s growing intent to bolster economic growth as the country’s once-a-decade leadership change looms, analysts said.

China’s powerful economic planning body, the National Development and Reform Commission, announced approvals for projects that analysts estimate total more than 1 trillion yuan ($ 157 billion U.S.), roughly a quarter of the total size of the massive stimulus package unleashed in response to the global financial crisis in 2008.

The announcement comes just before a deluge of Chinese economic data due on Sunday that could confirm investors’ worst fears that a downswing in the world’s second-biggest economy has stretched into a seventh straight quarter.

“Apart from the large sizes of the projects, the announcements for these new projects were all made in two days, which is very intense,” said Zhang Zhiwei, an economist at Nomura in Hong Kong.

“It signals a change in policy stance, which is now much more proactive,” he said.

China’s economy may be boosted by the increased spending in the last quarter of 2012.

Crucially, the projects are endorsed by Beijing and are likely to proceed. This is in contrast to pledges from nearly a dozen local governments in the last two months to spend around 7 trillion yuan to pump prime the economy, plans that economists say will not materialize due to funding shortages.

To avert a prolonged recession, Beijing launched a 4 trillion yuan ($ 630 billion U.S.) stimulus in 2008/09. But the experience saddled the world’s No. 2 economy with a pile of bad debt, forcing China to proceed with care on spending this time.

China has not unveiled any large-scale new government stimulus this year, despite mounting evidence the economy needs more prodding to regather momentum, as policymakers fret that a surge in prices could stoke social unrest at a politically sensitive time.

Instead, most spending increases are a result of fast-tracking infrastructure projects that are already in the pipeline.

Analysts have also urged caution. Ratings agency Standard & Poor’s said last month that China could afford to deliver fiscal stimulus, but risked making bad investments.

Still, pressure is building on Beijing to do more. Analysts say China must act soon if it wishes to cut interest rates as inflation looks set to rebound on soaring global grain prices. Worse, local pork prices have started rising too.

Gathering price pressures come even as China’s economic downturn deepens, forcing Beijing into a policy quandary: hold its fire on monetary policy and risk a sharper cool down, or lower rates and risk an inflation spike. – Business

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