China Eyes Consumer Boost, May Aim 8% 2009 Growth

China should take further steps to fight a sharp economic slowdown, including cutting interest rates and taxes as well as increasing investments aimed at spurring domestic consumption, a state think-tank stated on Tuesday.

CNBC.com

Beijing has drastically shifted its priority to prop up growth as concerns intensify that the global crisis will increasingly affect the world's fourth-largest economy.

"Our economy is at a historically significant juncture. In the short term, there is a risk of fast dropping in economic growth," the State Information Centre said in a research note published in the China Securities Journal.

Separately, the Shanghai Securities News cited unidentified sources as saying that Beijing would set a target of 8 percent for gross domestic product growth in 2009.

The paper said the target could be announced at a meeting of China's top leaders next week to chart economic policy for 2009.

Annual GDP growth slowed to 9.0 percent in the third quarter, from 10.1 percent in the second, and economists have pencilled in a much weaker rate for this quarter.

The State Information Centre said the central bank should further relax monetary policy by slashing interest rates and reserve requirements so that banks have more money to lend out and so that borrowing costs for companies fall.

The government has adopted an expansive fiscal policy with a 4 trillion yuan ($586 billion) stimulus plan unveiled on Nov. 9 as its centrepiece.

But consumers are wary of spending because they need to save for future medical costs and other bills.

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The solution, the report said, is for the government to invest more in housing, education and healthcare, as well as further lowering corporate and individual income taxes, so people have more disposable income.

The think-tank also recommended extra measures to slow a slide in export growth, such as increased export tax rebates for textile, high-tech and agricultural processing firms.

"The trends for our country's exports remain grim," it said.

Indeed, the State Information Centre said the overall outlook for 2009 was bleak despite recent monetary and fiscal easing.

"It is projected that in 2009 the unemployment rate will continue rising, and the employment situation will become more severe," the report said.

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