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Macro Economy: Economists calls to boost spending

By Nie Peng (chinadaily.com.cn)
Updated: 2008-10-09 15:47

Following a deceleration in exports, China's imports have also begun to show apparent signs of a slowdown, and economists believe expanding domestic demand will help China counteract the impact of the world financial crisis.

Among China's 200-plus trade partners, 59 witnessed negative growth in their exports to China in the first seven months of this year, an expert told Beijing Business Today on Tuesday.

"Such massive negative growth wasn't registered last year," said Bai Ming, a trade and economics researcher with the Ministry of Commerce.

Countries that have close economic and trade ties with China, including Portugal, Greece, and Belarus were among those suffering negative growth, Bai added.

China's trade volume is still on the rise from last year, but at a slower pace. Statistics from customs showed in August the nation's exports were worth $134.87 billion, up 21.1 percent year-on-year but down from the July rate of 26.9 percent. Imports were worth $106.18 billion, a rise of 23.1 percent year-on-year but sharply down from 33.7 percent in July.

A recent report released by the Bangkok-based Kasikorn Research Center warned China's import demand and industrial production had begun to decelerate due to the global economic slowdown.

"Of course, China's imports will decrease when domestic demand remains the same and exports are reduced," Bai explained.

A slide in trade volumes is now a common concern for most countries as the global downturn has led to sluggish market demand worldwide, Bai added.

Bai held the same view as many other economists that expanding domestic demand is a feasible way for China to weather the financial storm.

Justin Yifu Lin, the chief economist and vice president of the World Bank, said China has a lot of potential to increase domestic demand.

"On one hand, there's a wide gap between urban and rural areas and therefore many projects will be carried out in the course of building a new countryside...On the other, China's sound fiscal condition makes it capable of stimulating its domestic demand," Lin to Xinhua News Agency in a recent interview.

However, Bai said expanding domestic demand is easier said than done. "Comprehensive policy support is also needed to ensure people are willing to spend."

Following other economies' move to boost confidence in the financial market, China's central bank announced on Wednesday it will cut the benchmark interest rates by 0.27 percentage point from Thursday.

The reserve requirement ratio, or proportion of money commercial banks must set aside in reserve, will also be slashed by half a percentage point from October 15, the People's Bank of China said.

Earlier in the day, a Morgan Stanley report even boldly predicted that China would consider cutting interest rates as much as five times between now and the end of next year to stimulate the economy.

Wang Qing, a Morgan Stanley analyst, claimed in the report that China's central bank would cut the one-year lending rate from the present 7.20 percent to 5.85 percent in 2009.

The State Council, China's Cabinet, also said it would scrap the 5 percent interest tax imposed on personal bank savings starting Thursday to boost domestic demand.