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Beijing gambles on £375bn rescue as Golden Years come to an endEver since he was allowed to return t
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Ever since he was allowed to return to work on a Beijing building site after the Olympics, Zhou Shouheng has been nervous. He is still employed but some of his fellow migrant workers from the villages of Henan have been less fortunate, and he worries that China's sudden economic slowdown may soon claim his job, too.

The Government is just as anxious. The State Council, or Cabinet, unveiled an enormous package of spending yesterday, allocating four trillion yuan (£375 billion) to 2010 to stimulate the fastest-growing leading economy in the world, amid signs of a dramatic slowdown in the past few weeks.

It is no coincidence that the public spending was announced just days before President Hu Jintao is due to fly to Washington to take part in the G20 summit of government leaders.

He is certain to come under pressure to play a larger role in finding ways to soften the impact of the worsening financial storm. Mr Hu will now be equipped to explain how China, which contributed 27 per cent to global growth last year, is taking measures to help its economy.

The size of the stimulus package, which will be spent on roads, railways and airports as well as affordable housing, rural infrastructure, the power grid, environmental protection and technical innovation, highlights the extent of the country's economic difficulties. It is many times larger than China's emergency spending after the Asian financial crisis of 1997.

Signs of trouble emerged last month when the Government announced that the economy had expanded by only 9 per cent in the third quarter compared with the previous year - its slowest rate in five years and down sharply from 10.1 per cent in the previous quarter. Such a slowdown is too steep for a country that needs to maintain growth of at least 8 per cent to create enough jobs for the millions who enter the workforce each year and to satisfy a public that has come to expect a steady rise in incomes.

Exports have crumbled, putting thousands out of work in China's coastal provinces. The railway station in the southern city of Guangzhou, gateway to the Pearl River delta that has become a workshop to the world in the past decade, is crammed with workers heading home to their farms.

Wen Caixia had worked in a shoe factory but decided to return to her home village in central Hubei province to care for her son. “There just wasn't enough work. I was barely making my basic salary. Over the past few months, the company wasn't getting enough orders. There was never any chance of overtime so we were unable to save any money,” she said.

The chorus has gained volume in the past few weeks. Government measures to cool an overheating economy, to force low-end manufacturers to produce goods of a higher quality and to intervene in the sharp rise in property prices have coincided with the global economic crisis.

The slowdown has been so rapid that it has yet to show up in the statistics. Stephen Green, an economist in Shanghai for Standard Chartered, said: “Only a few months ago there was only one story to write about corporate China: how much money everyone was making. Suddenly, though, the Golden Years have shuddered to a dramatic halt.”

Steel prices have dropped by more than 40 per cent from the June peak of $870 (£550) a tonne, crippling the sector and forcing large state-owned manufacturers to reduce production by as much as 20 per cent.

China's biggest property developer said that sales fell by 35 per cent in October compared with the previous year - the fifth consecutive monthly decline. The “Golden September” and “Silver October” months of peak sales that real estate agents have come to expect in the past five years have failed to materialise.

One international hotel group decided last week to delay opening its first property in Beijing until June next year at the earliest.

Mr Zhou believes that the government spending could reap rewards, and is not eager to return to his dusty village just yet. “All the men in my village have come to work for one boss because he has good connections,” he said.

Signs of the times

— 67,000 of China's 42 million small and medium businesses went bust in the first half of this year

— Since the start of this year 3,631 (53 per cent) of toy manufacturers have gone out of business

— In the third quarter of 2008 China's GDP growth dropped to 9per cent from 10.1 per cent in the previous quarter. It was the first time the GDP growth had dipped below 10 per cent in three years

— In October 2008 Chinese coal exports were down by 53.6 per cent on the same month in 2007

Jane Macartney in Beijing

Source >
  TIMES ONLINE |  nov 06

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