Chinese shares rise as details of plan emerge

ANALYSTS IN Asia have compared China's four-trillion yuan (€455 billion) stimulus plan to a "hong bao", the little red envelopes stuffed with cash traditionally given out at Chinese New Year.

Chinese shares bucked the trend yesterday and rose on the publication of details of the plan, which has shown China is ready to unlock some of its reserves to help boost domestic spending and keep the world's fourth-largest economy on track.

Ahead of the weekend's G20 financial summit in Washington, World Bank chief economist Justin Lin told the China Daily newspaper that he thinks China is capable of achieving 8-9 per cent GDP growth in 2009 and 2010, which would help the economies in the region and the world at large.

However, it may take more than a generous dose of infrastructural spending to cure China's, and the world's, economic ills. Data yesterday showed that Chinese factory gate orders last month grew at their slowest rate in seven years, and the stimulus package is very much pointed at the government's primary concern, the domestic market.

Premier Wen Jiabao has been careful to make sure the plan does not provoke any irrational exuberance and he described the economic downturn as being "worse than expected".

Meanwhile, Hong Kong said that it was unlikely to meet its growth forecasts for the current year.

China's growth rate remains in the high single digits at around 9 per cent, but there are signs of a slowdown and Mr Wen made it clear that the emphasis of government policy had switched in a few months from trying to cool inflation and an overheating economy that grew nearly 12 per cent last year to trying to keep growth ticking over as exports and investment falls.

He was quoted making his remarks by National Bureau of Statistics director Ma Jiantang during a meeting of officials.

Li Rongrong, head of the the state-owned Assets Supervision and Administration Commission (SASAC) warned state-owned Chinese companies not to rush into overseas mergers and acquisitions.

"Hold your cash. Don't rush. There will be plenty of opportunities in the future," he said.

The 10-point stimulus plan involves huge infrastructural spending, makes getting credit easier, cuts taxes and seeks to boost domestic consumption.

Hong Kong's financial secretary John Tsang said the former Crown colony's economic growth this year was likely to fall short of the government's forecast 4-5 per cent given the impact of the global financial crisis and economic downturn.

"The latest indications suggest that our third-quarter economic growth will moderate further from the 4.2 per cent growth in the second quarter, and there is little ground for optimism about economic conditions in the fourth quarter," he said.

Hong Kong owns a lot of factories in southern China and it is being hurt by weakening global demand for Asian goods.

Stock markets are reeling too in the territory, losing half their value this year so far, which has hit consumer demand.