China may pump in as much as 2 trillion yuan (US$315 billion) in investment to boost the economy - half as much as in 2008 - with the country facing increasing challenges, a Credit Suisse report said.
It is so far the most specific prediction on how China will act against an economic slowdown, and whether it will have the same side effects as the 2008 stimulus.
The stimulus plan, if carried out at the predicted size, will lift China's economic growth in the second half of this year from a possible dip below 7 percent this quarter, Tao Dong, an analyst with Credit Suisse, said yesterday.
The stimulus "can hold the slide in growth and investment demand, but probably not enough to stage a 2009-style rebound," Tao said.
He added that unlike the 2008 stimulus, in which local governments borrowed heavily from banks, this stimulus will have greater funding from the central government.
Economists have estimated that local governments ended borrowing some 14 trillion yuan since November 2008 after China announced a 4 trillion yuan stimulus plan. The excessive borrowing has fueled rapid inflation for consumers and huge pressure from bad loans for banks.
To reflect the needs for reforming economic structure and controlling property speculation, the package this year may also increase subsidies for environmental-protection projects and funding for public housing, Tao said.
China's State Council, or Cabinet, said last week the central government would act to speed up economic growth as the country is facing increasing difficulties.
The statement omitted detailed plans, especially the amount of funding attached. But it outlined directions similar to the 2008 stimulus, including faster approval of infrastructure projects, more subsidies for consumer goods sales, and encouragement to seek alternative financing.
Economists from Standard Chartered Bank said in a report released yesterday that this stimulus plan is "constrained" as policy makers are hesitant to repeat "mistakes" of the 2008 stimulus, and the banks now show "reticence to lend on such a grand scale."
"The 'new' idea in the 2012 package is more private-sector participation, though we are yet to be convinced that enough has been done to make that a reality," the report said.
Source: Shanghai Daily