China unveils $586 bn stimulus plan

BEIJING: China announced a 4-trillion yuan ($586 billion) stimulus plan to spur expansion in the world���s fourth-largest economy, helping sustain global growth as the US, Europe and Japan teeter on the brink of recession.

The funds, equivalent to almost a fifth of China���s $3.3-trillion gross domestic product last year, will be used by the end of 2010, the Beijing-based state council said on Sunday on its Web site. China will adopt a ���proactive fiscal policy��� and pursue a ���moderately loose��� monetary policy, it said.

���We have long-awaited this stimulus plan,��� said Ken Peng, an economist at Citigroup in Shanghai. ���The measures may stimulate domestic demand, but they won���t prevent China���s economy from slowing further as the global economy is certainly in a recession.���

China is taking steps to bolster its economy, the biggest contributor to global expansion, less than a week before premier Wen Jiabao goes to Washington for talks with world leaders on ways to address the economic slump. People���s Bank of China governor Zhou Xiaochuan said on Saturday boosting spending at home is the best way China can help.

China accounted for 27% of global economic growth last year, more than any other nation, the International Monetary Fund said in a report in April this year. ���Over the past two months, the global financial crisis has been intensifying daily,��� the state council said on Sunday. ���In expanding investment, we must be fast and heavy-handed.���

The package announced on Sunday, of which 100 billion yuan is earmarked for this quarter, will go toward low-rent housing, infrastructure in rural areas, as well as roads, railways and airports, the state council said.

The government will also allow tax deductions for purchases of fixed assets such as machinery to stimulate investment, a move that will reduce companies��� costs by an estimated 120 billion yuan. In addition, grain purchase prices and subsidies for farmers will be raised, as will allowances for low-income urban households.

The stimulus plan may boost China���s economic growth by 2 per centage points next year, said Xing Ziqiang, an economist at China International Capital in Beijing. Wen is trying to stop China���s economic slowdown from deepening. The central bank has already cut interest rates three times in two months, reducing the one-year lending rate to 6.66%.