China Pledges More ‘Fine-Tuning’ in Support for Growth

China’s leaders pledged to intensify “fine-tuning” of policies in the second government statement in four days signaling a commitment to growth as domestic demand slows and Europe’s debt crisis escalates.

“We must proactively take policies and measures to expand demand and to create a favorable policy environment for stable and relatively fast economic growth,” the government said on its website yesterday, summarizing a meeting of the State Council, or Cabinet.

The statement builds on Premier Wen Jiabao’s comments published May 20 showing a bigger focus on bolstering growth, which spurred speculation the government will step up efforts to combat a slowdown after April trade and industrial output were below forecasts. Authorities this month cut banks’ required reserves for the third time since November.

“The State Council meeting confirms stimulus will come,” Zhang Zhiwei, Nomura Holdings Inc.’s chief economist for China, said in a note to clients yesterday. China’s government is going through a standard procedure in reaction to bad economic conditions, which will probably be completed with stimulus policies being implemented in June, said Zhang, who is based in Hong Kong.

The nation “must intensify precautionary adjustment and fine-tuning of policies according to changes in conditions,” the government said. Monetary policy should remain “prudent” while focusing more on “meeting demand from the real economy,” according to the statement.

Infrastructure Projects

China will start a series of “key infrastructure projects that are vital to the overall economy and can facilitate growth” and speed up construction of existing railway, environmental protection and rural projects, the government said yesterday.

The statement was issued after the close of markets in China. The yuan weakened against the dollar for the first time in three days yesterday with a 0.2 percent fall to 6.3345, extending this year’s decline to 0.6 percent after a 4.7 percent increase in 2011.

The Organization for Economic Cooperation and Development said May 22 that the turmoil in Europe risks spiraling and seriously damaging the world economy. The depth of the blow to China’s economy in the event Greece leaves the euro may depend on the government’s response, economists at banks including China International Capital Corp. said.

CICC, the nation’s biggest investment bank, sees expansion in the world’s No. 2 economy after a Greek exit slowing to 6.4 percent in 2012 without policy stimulus, economists led by Beijing-based Peng Wensheng said in a report yesterday.

“The pressure for counter-cyclical policy easing will increase significantly if a Greek exit from the euro zone greatly impacts China’s aggregate demand, dragging the economy well below its potential growth rate and causing unemployment to increase,” the CICC economists said.

Economic growth of 6.4 percent would be the worst since 1990, one year after the political turbulence related to the 1989 Tiananmen Square protests. Wen in March set a target of 7.5 percent for this year’s expansion, the lowest goal since 2004.