China Economy to Rebound as Stimulus Spurs Investment (Update3)(2)

    The government has targeted 8 percent economic growth for the year, a level deemed necessary to create enough jobs for its growing population.

    The closure of thousands of factories has cost the jobs of millions of migrant workers, raising the risk of social unrest as China approaches the anniversary of the anti-government protests and crackdown in Tiananmen Square in June 1989.

    While stimulus measures have started to produce results, China faces faltering export demand, industrial overcapacity, unemployment and weak private investment sentiment, Wen said yesterday. A rebound in industrial-output growth lacks momentum, the premier said.

    “Growth may have bottomed out in the first quarter but with private sector and overseas demand still weak, China will not emerge from this downturn as rapidly as it went in,” said Mark Williams, an economist with Capital Economics Ltd. in London.

    Profits Decline

    Profits earned by industrial companies fell 37 percent in the first two months of the year. Those earnings contributed four times as much to investment as bank lending and government spending combined last year, according to Williams.

    “It seems wishful thinking to conclude, as many are, that China is on the cusp of a rapid rebound,” he said.

    China’s expansion contrasts with recessions around the world. The Organization for Economic Cooperation and Development predicts 6.3 percent growth for China this year, compared with a 4 percent contraction in the U.S. and a 6.6 percent decline in Japan.

    Wen’s stimulus, plus a decision by the central bank to remove lending caps in November, helped new loans jump more than six times to 1.89 trillion yuan in March from a year earlier. The value of new investment projects started in the first quarter increased by 87 percent.

    The Shanghai Composite Index of stocks has climbed about 38 percent this year, the second-best performer among 88 indexes tracked by Bloomberg.

    “March activity reports and bank-loan data show that the economy is gaining speed heading into the current quarter,” said Frank Gong, head of China research at JPMorgan Chase & Co. in Hong Kong. “Fixed investment is accelerating as major infrastructure projects break ground.”

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