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May 28, 2017

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China seeks spending fix as economy wobbles

SHANGHAI--China is unlikely to resort to the kind of spending splurge that saw it through the 2008 financial crisis to deal with its slowing economy, analysts say, but recent moves to ramp up state support suggest it cannot wean itself completely off the stimulus drug.

Policymakers are seeking more tools to keep growth from dipping below the key 7.5 percent level, worried job losses could spark social unrest.

The central bank announced last Monday it will slash the amount of funds some lenders, including rural banks, must hold in reserve to pump more money into the economy — the second such move in two months.

Chinese Premier Li Keqiang on last Wednesday gave details on plans announced in March to transform China's longest river, the Yangtze, into an "economic belt" by building transport infrastructure to link the country's west and east.

Speaking to academics in the past week, Li called for more attention toward a "targeted" adjustment of the economy, using the phrase for the first time, though he added "fine-tuning" was needed to keep growth on track.

But analysts said the basket of measures accumulated so far this year had moved beyond their original label of small-scale pump-priming.

"It's certainly past the so-called 'mini-stimulus' and the scope of 'fine-tuning'... but it's not a big stimulus either," Liu Li-gang, a Hong Kong-based economist for ANZ Bank, told AFP.

"It might speed up China's investment growth a little but it's not comparable to the 4-trillion-yuan package during the financial crisis," he said.

In March, Premier Li announced an economic growth target of "around 7.5 percent" for this year and has repeated that China can meet that goal.

China's economy grew an annual 7.7 percent in 2013, the same level as 2012, which was the worst pace since 1999.

The binge of 4.0 trillion yuan — US$656 billion at current exchange rates — on infrastructure in 2008 and 2009 still reverberates with a deflating property market bubble and a multi-trillion dollar "shadow banking" sector that grew out of loose credit.

Little Appetite for Big Stimulus

This time around the government is reluctant to match those levels of spending.

"The new leadership has ruled out a repeat of the big stimulus in 2008-09," said Jian Chang, China economist at Barclays Capital in Hong Kong.

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