China could roll out 4.65tr yuan stimulus package - Bloomberg

Deutsche Bank AG said that China may roll out stimulus of as much as 4.65 trillion yuan (Dh2.67 trillion), including subsidies on consumer goods, in the event of a global slump.

While highly speculative, a sketch of the government's possible response is emerging from "our discussions in China," Hong Kong-based economist Ma Jun said in a note on Friday.

The government would limit the scale of any measures because of the costs associated with the previous package, including asset bubbles, inflation and non-performing loans, Ma said.

Even in a severe global recession, the amount would be unlikely to be larger than half the 9.3 trillion yuan fiscal and monetary expansion that Deutsche Bank estimated took place from November 2008 to the end of 2010, he said.

China's government is wrestling with elevated inflation and the threat of a deeper economic slowdown because of the debt crisis in Europe, the nation's biggest export market, and weakness in the US economy. Deutsche forecasts that China's growth may cool to 7.3 per cent in the first quarter of next year compared with 9.5 per cent in the second quarter of 2011.

The Shanghai Composite Index fell 1.4 per cent as of the 11.30am local-time break in trading, set for the lowest close in 14 months.

Fiscal steps
Stimulus measures would mostly be fiscal rather than monetary, Ma added.
Efforts to boost consumption could include consumer vouchers, subsidies for consumer goods, temporary cuts in fees for electricity and water, and temporary tax breaks for small businesses.

The government could allocate more investment to public housing and "long neglected" agricultural infrastructure, Ma said.
He said that 40,000 dams, or about 45 per cent of the total, are in need of repair. The labour-intensive services sector could be used to absorb workers from export industries, he said.