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China Stimulus May Be 2 Trillion Yuan, Credit Suisse Says

The Chinese government’s stimulus in response to the nation’s economic slowdown will probably be as high as 2 trillion yuan ($315 billion), half the size of 2008’s package, Credit Suisse Group AG said.

Spending on investment will range from 1 trillion yuan to 2 trillion yuan, compared with the 4 trillion yuan stimulus enacted in response to the global financial crisis, Tao Dong, a Hong Kong-based economist, said in a research note today. The government actions will aid a rebound in growth that may slow to 7 percent or “slightly below” this quarter, Tao said.

Premier Wen Jiabao has vowed to focus more on increasing growth after trade and domestic demand were below forecasts in April, data that prompted economists to pare outlooks for the world’s second-largest economy. The government’s efforts may help lift expansion in the second half to a range of 8 percent to 8.6 percent, Tao said.

“These policy stimuli can hold the slide in growth and investment demand, but probably not enough to stage a 2009-style rebound,” Tao said. “The central government is likely to play a bigger role in funding, in contrast to last time in 2009 where the local governments relied on bank lending for funding almost entirely.”

China’s central bank is likely to cut lenders’ reserve-requirement ratio by 50 basis points each in the third and fourth quarters, said Tao, who doesn’t “rule out an extra cut in June.”

There’s a “possibility” China’s central bank will lower the benchmark lending rate by a quarter percentage-point without a reduction in the deposit rate, he said.

Lending-Rate Range

Separately, Ma Jun, an economist at Deutsche Bank AG in Hong Kong, sees chances of greater than 50 percent that the nation will cut interest rates or ease the floating range for lending rates, according to a Deutsche Bank research note dated May 25.

Credit Suisse’s second-quarter growth forecast is lower than that of all 21 economists who responded to a Bloomberg News survey May 14-15. The median estimate was for 7.9 percent expansion, with projections ranging from 7.5 percent to 8.4 percent. Tao forecast an 8 percent rate for the entire year, compared with the median 8.2 percent in the survey.

The Shanghai Composite Index rose for the first time in four trading days, gaining 1.2 percent today.

Central authorities have “encouraged local governments to bring forward their planned infrastructure projects to an earlier date,” Tao said. There are also credit lines for railways, subsidies for environmental-protection projects and funding for public housing, he said.

Speeding Up Approvals

China has sped up the approval process for major projects, the official Xinhua News Agency said in a report today. The country will also encourage greater private investment in banks, according to guidelines released by the China Banking Regulatory Commission in a statement posted on its website May 26.

China announced the 4 trillion yuan stimulus package in November 2008. Local governments ending up spending close to 14 trillion yuan, Tao said.

The National Development and Reform Commission, the planning agency, may be accelerating construction approvals. Baosteel Group Corp. and Wuhan Iron & Steel Group won permission to build 134 billion yuan of new factories, the NDRC said last week. The NDRC had delayed approving the two steel projects in 2009, citing industry overcapacity.

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