China OKs domestic spending boost; Europe plans more rate cuts

By Kirby Chien and Anna Willard
Reuters
Sunday, November 9, 2008

http://www.reuters.com/article/newsOne/idUSTRE49N5VU20081109

China approved on Sunday a massive stimulus plan worth nearly $600 billion through 2010 to boost domestic demand as part of a global push for measures to soften an expected recession in many countries.

In Brazil, finance ministers, senior officials, and leading central bank governors representing 90 percent of the world's economy tried to find ways to shield their economies from the backlash of the credit crisis.

"For those countries which are able, the encouragement is to take measures of support," said French Economy Minister Christine Lagarde.

"The Chinese minister said they were determined to support internal demand," she told reporters, referring to talks in Brazil's business capital among countries in the G20 group of advanced and big emerging economies.

Chinese official news agency Xinhua said the plan approved by the Cabinet in Beijing targeted investments in infrastructure, social welfare, and other key sectors as part of an "active" fiscal policy.

The Cabinet announced an explicit shift in monetary policy, which it now described as "moderately easy" and a long-awaited reform to the way value added tax is calculated, giving companies an effective tax cut.

The head of the World Bank and other senior officials attending the G20's annual meeting all cited China as an important player in the attempts to kick-start growth.

China's central bank governor, Zhou Xiaochuan, said on Saturday the Asian export powerhouse, one of the few remaining engines of global growth, wanted to maintain its economic expansion, which he forecast at between 8 percent and 9 percent in 2009.

Some economists have predicted that growth in China rate could slow to less than 8 percent next year, down from double-digit levels in the past five years until this year.

Also on Sunday, Taiwan's central bank unexpectedly cut interest rates by 25 basis points, its fourth reduction in just over a month as fears of a global recession threatens the export-led economy.

The finance chiefs attending the G20 meetings in Sao Paulo are trying to come up with proposals for their leaders to take to an emergency summit on the financial crisis next weekend in Washington.

In Europe, the main stimulus for growth would come from lowering interest rates, France's Lagarde said, reiterating her previous comments that a European Central Bank rate cut is likely soon.

"As far as the Europeans are concerned we have our monetary effort, which is in the process of being consolidated with successive rate cuts and the anticipated rate cut maybe in the next few weeks," she said.

Other ministers at the Sao Paulo meetings also said their discussions touched on the need to further loosen monetary policy in some countries, even after aggressive interest rate cuts by central banks worldwide in recent weeks.

Next Sunday's summit in Washington is likely to address calls from some large emerging economies, such as Brazil, for a greater say in the way global finance is managed, long the preserve of the world's developed economies.

International Monetary Fund chief Dominique Strauss-Kahn told reporters the Sao Paulo talks showed "the G20 is the right body to try to handle the world's problems."

Some countries, like France, the current EU president, have billed the Washington summit as a chance for far-reaching reforms of institutions such as the International Monetary Fund.

Other issues under discussion include new regulations for financial markets to prevent a repeat of the credit crisis that erupted last year and has pushed many leading economies toward recession.

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