Business

China pledges measures to boost demand and investment

Yuan notes
Image caption China has previously used stimulus measures to sustain its high rate of growth

China has said it will take measures to boost demand and investment amid fears of a slowdown in its economy.

On Wednesday, the government said it will encourage private investment in sectors such as energy, railways and telecommunications.

The move comes as its export sector, one of the biggest drivers of growth, has been hurt by falling global demand.

Policymakers have also found it tough to boost domestic consumption enough to offset a decline in foreign sales.

"Downward pressure on the economy is increasing," the government said in a statement issued after a cabinet meeting led by Premier Wen Jiabao.

It added: "We must proactively take policies and measures to expand demand and to create a favourable policy environment for stable and relatively fast economic growth."

Getting worried

China's growth has been slowing in recent times. Its economy expanded by an annual rate of 8.1% in the first quarter, the slowest pace in almost three years.

The government has set a target of 7.5% growth in 2012, the lowest since 2004. However, there have been fears that China's economy may witness a bigger-than-expected slowdown in the near term.

Those fears have been fanned further in recent days as the eurozone debt crisis has taken centre stage again after voters in Greece backed politicians who have voiced their opposition to state spending cuts.

There are concerns that as the debt crisis escalates, it may dent consumer sentiment in the region and further hurt demand for China's exports.

"China seems concerned enough about its own growth slowdown and downside risks coming from the European crisis that it will do more to stimulate its economy, even pre-emptively," said Dariusz Kowalczyk of Credit Agricole CIB.

Policy easing?

Triggered by fears of a slowdown in the economy, China has been easing its policies in a bid to sustain growth.

China's central bank has cut the reserve ratio requirement, the amount of money that banks need to hold in reserves, three times in the past six months.

The cuts give more money to banks to lend in the hope that increased lending will result in higher spending and boost domestic demand.

Mr Kowalczyk said that the government's latest statement indicated that it will ease its policies "via pressuring banks to lend more".

He added that the central bank may further reduce the reserve requirements for banks in the coming months as well as cut interest rates.

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