JP Morgan: China may issue 550 billion yuan government bonds to stimulate economy

JP Moargan yesterday issued a report saying that the Chinese government may issue 550 billion yuan worth of government bonds in order to stimulate the economy. But on the search for new breakthroughs for the China economy growth, there are still some disputes within the local academics.

In the report, it says that China's current financial situation is much stronger than the 1997 Asia financial crisis and the economic downturn 8 years ago. But this time the downturn's underlying risks are much higher than before. So the financial expenditure plan for this time may be much bigger. The estimated financial expenditure may be equivalent to about 1.2%-2.0% of China's GDP.

Frank Gong, Managing director, Head of Research Division, China's Chief Economist with JP Morgan said before in August that current China's economic situation is only at the beginning of autumn. The worrying deep cold winter has not come yet. In the report, Frank Gong mentioned that it still needs observation whether the current situation will follow the downturn trend of the 80s in the last century. China manufacturing industry is already facing tough times and thus the government departments must have foresight and quickly come out with plans and policies to help stimulate the economy.

The downturn of the China economy for 2H 2008 has raised big concerns for the Chinese government. According to media reports, after the approval of the plan to spend two trillion yuan on construction of new railways, China is considering a plan to invest five trillion yuan in the transport sector in the next three to five years. In actual fact, the reliance on transport, railway and such projects in the past have been used to stimulate economic growth and is accepted by most economists that it will work.

Academy of Social Sciences Research Center for the less developed regions director 袁钢明 in his blog says that comparing to the railway and transport big projects, people's livelihood as the breakthrough point to stimulate the economy will be more suitable for the current China's economic situation. He believes that the effect for the investments on railway and transport now will be greatly discounted. In contrast, the people's livelihood-related stuff such as welfare housing and rural roads buidup are the weak links in current government investments, such investments can be main points to increase domestic demand.