China in huge spending spree to tame economic crisis

China promised a vigorous government spending programme today, with increased money for infrastructure, social schemes and tax cuts to overcome the country’s brewing economic crisis.

The massive cash outlays will allow the government to aim for economic growth of “about 8%”, premier Wen Jiabao said in a speech to open the National People’s Congress, China’s annual legislative session.

The government hoped to create nine million new urban jobs, Mr Wen said. Rising unemployment is a major concern of the government as a drop in worldwide demand for Chinese products has forced thousands of factories to close.

“In China, a developing country with a population of 1.3 billion, maintaining a certain growth rate for the economy is essential for expanding employment for urban and rural residents, increasing people’s incomes and ensuring social stability,” he said.

China’s leadership believes that maintaining a strong rate of growth is essential to creating jobs, raising incomes and staving off unrest in a society that has grown used to steadily rising standards of living. Economic growth of anything less than 7% or 8%, some officials say, would strain stability.

China has the world’s third-largest economy after the US and Japan and its plans are being closely watched, with stocks up around the world yesterday pinned on hopes it would take convincing action to restart its economy.

Beijing sets spending levels not only for the central government but also for the local governments.

Budgets this year are projected to increase by almost 25%. The central government budget will total £457bn (€513.6bn). Local government spending will also increase by nearly 25% and to a total of £636bn (€714.8bn).

The government announced a £418bn (€469.8bn) stimulus package in November and Mr Wen said the budget deficit would rise to about 3%, totalling £99bn (€111.2bn) for 2009, the highest in communist China’s history.

He said the amount of outstanding government bonds equalled about 20% of gross domestic product and “is within the acceptable range of what our overall national strength can bear and is therefore safe”.

He said China’s economy faced many difficulties. “The global financial crisis continues to spread and get worse,” he said.

That means China is suffering from a continuous drop in its economic growth rate with a growing excess production capacity. There were declines in government revenue and difficulties in keeping rural incomes growing.

“Consumption demand is insufficient,” he said.

Mr Wen said an additional £88.5bn (€99.4bn) would be spent on health care reforms over the next three years, including £34.6bn (€38.88bn) from central government.

His speech comes a day after China said it planned a 14.9% increase in defence spending this year. The additional funding would go towards boosting salaries and benefits for China’s 2.3 million-strong military force, the world’s largest.

China’s defence spending amounts to 1.4% of GDP, compared with 4% for the US

The National People’s Congress is a sensitive political time for the government, with petitioners coming from around China to seek help on problems they feel regional officials are ignoring.

Tiananmen Square was sealed off from the public. The hordes of tourists who normally fill the square were forced to stay on the pavements across the street in areas heavily patrolled by soldiers with fire extinguishers and police who randomly searched bags.