Mainland faces big test to keep growth on track
Official's warning comes as fixed-asset investment rises slower
The mainland faces a 'formidable challenge' in keeping the world's fourth-largest economy on track amid a worsening global environment, a top planning official said yesterday, as cooling capital investment signalled a deepening slowdown.
The warning by Mu Hong, a vice-chairman of the National Development and Reform Commission, came as the National Bureau of Statistics said growth in fixed-asset investment in urban areas eased last month from September.
Fixed-asset investment rose 27.2 per cent in the first 10 months from a year earlier, lagging the 27.6 per cent gain through September, the bureau said. But the figures suggest a 24.4 per cent increase in October, down from 29 per cent in September.
'We are confronting a formidable challenge in our effort to effectively prevent the economy from slowing rapidly amid a severe situation at home and abroad,' said Mr Mu at a briefing in Beijing.
Yesterday's data was consistent with weakness seen in a slew of data released this week that pointed to slowing growth in industrial output and retail sales, declining fiscal revenue, easing producer and consumer inflation, slowing import and export growth, and sluggish property prices.
Ha Jiming, the chief economist at China International Capital Corp, said last month's data suggested the economy was deteriorating fast.
'The economy is facing an even bigger challenge, and the government's stimulus policy will not easily change the economic trend,' he said.
Barclays Capital Research attributed falling prices and weak property activity to a moderation in capital spending.
Spending on property development cooled, rising 24.6 per cent in the first 10 months from a year earlier after gaining 26.5 per cent through September, the statistics bureau's figures show. Prices and sales are falling in major cities.
'We believe government-supported investment is likely to show more visible growth in the last two months of this year, more so in 2009,' wrote Barclays Capital economists Wensheng Peng and Yan Zheng.
Meanwhile, the Ministry of Housing and Urban Construction announced the government would invest 900 billion yuan (HK$1.02 trillion) to build affordable houses over a three-year period, Xinhua reported.
Vice-Minister of Housing and Urban-Rural Development Qi Ji said the massive construction plan could stimulate related investment of about 600 billion yuan each year and provide more than 2 million jobs.
Mr Mu reiterated the need to boost consumption and described the nation's 'economic fundamentals' as healthy.
'We have a market of 1.3 billion people, which has great potential, and we also have great potential to boost investment and consumption,' he said. 'We still have a lot of room to manoeuvre to ramp up domestic demand.'
On Sunday, the State Council announced a 4 trillion yuan stimulus package to invest in infrastructure, health care, education and environmental protection to offset slowing growth.
But economists cast doubt on the government's plan to boost spending as fiscal revenue declined last month for the first time since 1996.
However, Mr Mu said the central government would contribute only slightly more than 25 per cent of the economic stimulus package.
The central authorities would provide 1.18 trillion yuan to fund increased spending on railways, roads, health care and housing, he said.
The rest would come from local authorities, companies and other sources including overseas investors.
But Vice-Finance Minister Wang Jun said the spending plan should be manageable with the help of the country's sizable foreign exchange reserves and high savings rate.
Mr Wang said the fiscal deficit would be equivalent to less than 3 per cent of GDP next year.
'The scale of this [budget spending] is entirely within our control,' he said.