China is preparing steps to boost domestic demand, including more spending on railways, to help cushion the impact of the global credit crisis, a senior official said on Saturday. The package of measures will be finalised at next month's Central Economic Work Conference, at which top policy makers will chart policy for 2009, Zheng Xinli, vice-head of the ruling Communist Party's Policy Research Office, said.
"China will roll out some very important measures to boost domestic demand next year," Zheng told reporters on the sidelines of an economic forum. He said China still had potential to increase consumption further, but rapid growth in household spending in recent years meant the scope was limited.
Policy makers were concentrating instead on stepping up investment in industrial projects and infrastructure, particularly railways, and at relaxing curbs on the property sector. Zheng said the National Development and Reform Commission, the main planning agency, was working on detailed proposals for rail reform. Beijing has budgeted 1.2 trillion yuan ($175.7 billion) in rail investment for 2006-2010, more than four times the sum in the previous five years, to make up for past underinvestment that has resulted in serious cargo and passenger bottlenecks.
Much of current rail capacity is devoted to the transport of coal, the main source of power, forcing a lot of freight to be moved by road even though it is less efficient. Passenger trains are very overcrowded, especially at holiday periods.
Zheng drew a parallel between the policy response now being drafted and the road-building programme that China launched to pump up the economy after the 1997/98 Asian financial crisis. "Last time when we tried to boost domestic demand we built our highway system. This time we will probably build up our railway network," he said.
Zheng said the government, unlike a decade ago, was unlikely to have to resort to massive bond financing to pay for the investment binge because tax revenues were strong. Beijing issued 360 billion yuan in long-term infrastructure bonds between 1998 and 2000. "It's not necessary right now, but we will issue such bonds if we have to," Zheng said.
China's economy is slowing after five years of double-digit growth. Commerce Minister Chen Deming told Reuters in Paris that figures on Monday were likely to show annual gross domestic product growth fell in the third quarter to "a little bit above 9 percent" from 10.1 percent in the second quarter. Still, Zheng said the government had been pleasantly surprised so far that exports had not taken a bigger hit from the global crisis. Annual export growth picked up to 21.5 percent in September from 21.1 percent in August.
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