China needs investment to lift economy: Xinhua

BEIJING Tue Jul 17, 2012 5:55pm IST

BEIJING (Reuters) - China needs investment to bolster flagging economic growth but spending must be adjusted to avoid waste, state-run Xinhua said on Tuesday, citing comments from a parliamentary meeting that signaled Beijing's intent to raise spending to lift activity.

The meeting of lawmakers who oversee economic issues was quoted as reaching the conclusion that China's economic recovery is not solid, and that Beijing needs to keep fiscal policy active, and monetary policy prudent, to support activity.

The comments shed light on how China's cabinet will set economic policy for the second half of 2012 when it meets as early as Wednesday.

Economists largely expect Beijing to stick to its rhetoric of promising to "fine-tune" policy to lift growth, but would be looking for details of any industries that stand to benefit from increased state investment.

"Stabilization of the economy cannot get away from investment. But we must prudently control its scale and direction," the state-run news agency cited the lawmakers as saying.

"We need to ...avoid blind investment that aggravate the problem of industrial over-capacity and fuel fiscal risks."

That Beijing is once more relying on big state investments to drive China into an economic recovery worries some analysts who fear a repeat of 2008/09, when unrestrained government spending left a pile of bad debt estimated at between 2-3 trillion yuan ($313.5-$470.3 billion).

But economists also say it is no surprise China is counting on the quick, short-term fix of an investment boost to lift growth. Its economy is experiencing its sharpest slowdown in three years, growing just 7.6 percent in April-June from a year ago.

In a sign that some officials are in favor of Beijing relaxing its restrictions on the property market, Xinhua quoted Tuesday's meeting as recommending China to allow the property sector to get more financing.

"We should improve the financial policy for the property market and broaden its financing channels," it said.

Chinese property developers have struggled with a financing shortage for over two years after Beijing barred them from raising funds through domestic stock market listings and bond sales, while ordering banks to cut lending to the sector.

($1 = 6.3787 Chinese yuan)

(Reporting by Langi Chiang, Shao Xiaoyi and Koh Gui Qing; Editing by Edmund Klamann, John Stonestreet)

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