STOCKS AND commodity prices rose around the world yesterday amid hopes that China’s leaders would unveil their second economic stimulus package in four months at the opening of the National People’s Congress today.
The Shanghai Composite, China’s leading stock market index, rose more than 6 per cent in its biggest one-day gain since November, after a senior official said Chinese premier Wen Jiabao would outline new spending plans to combat the global downturn at the congress, China’s legislature.
US and European markets also rebounded after two days of heavy selling, with the FTSE 100 rising 3.8 per cent and the SP 500 up 1.5 per cent in afternoon trading.
Mining and resources companies led the way. The prospect of a Chinese recovery reviving global demand also prompted a jump in commodity prices, with copper rising 7 per cent to a three-month high.
Beijing unveiled a Rmb4,000 billion (€462 billion) investment plan in November, but the rapid deterioration in the global economy has put pressure on authorities to take additional steps to prevent a collapse in Chinese growth.
Li Deshui, former head of the statistics bureau and a former member of the central bank’s monetary policy committee, told reporters “a new stimulus package” would be announced by Mr Wen.
One media report cited an unnamed economic planning official saying extra infrastructure spending would be introduced.
Many details of the initial Rmb4,000 billion package remain unclear, although economists estimate that up to one-third will be new money not already in the budget for the next two years and the bulk will be invested in infrastructure projects.
In a report released last week, Standard Chartered said officials in Beijing had been discussing the possibility of raising the plan to between Rmb8,000 billion and Rmb10,000 billion.
Hopes of recovery in China were also boosted yesterday by news suggesting the economy may have bottomed out.
China’s official purchasing managers’ index rose to 49.0 in February. While below 50, which indicates that manufacturing is still contracting, it was well above January’s figure of 45.3, showing a significant improvement.
The future of China’s economy remains unclear. Steel production rebounded this year after the first stimulus. But steelmakers are now cutting back production again, in the absence of any real recovery in demand. – (Financial Times service)
