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China pledges measures to boost demand and investment

in International Business

China pledges measures to boost demand and investment

China’s growth has been slowing in recent times. Its economy expanded by an annual rate of 8.1% in the first quarter, the slowest pace in almost three years.

The government has set a target of 7.5% growth in 2012, the lowest since 2004. However, there have been fears that China’s economy may witness a bigger-than-expected slowdown in the near term.

Those fears have been fanned further in recent days as the eurozone debt crisis has taken centre stage again after voters in Greece backed politicians who have voiced their opposition to state spending cuts.

There are concerns that as the debt crisis escalates, it may dent consumer sentiment in the region and further hurt demand for China’s exports.

“China seems concerned enough about its own growth slowdown and downside risks coming from the European crisis that it will do more to stimulate its economy, even pre-emptively,” said Dariusz Kowalczyk of Credit Agricole CIB.

Policy easing?

Triggered by fears of a slowdown in the economy, China has been easing its policies in a bid to sustain growth.

China’s central bank has cut the reserve ratio requirement, the amount of money that banks need to hold in reserves, three times in the past six months.

The cuts give more money to banks to lend in the hope that increased lending will result in higher spending and boosting domestic demand.

Mr Kowalczyk said that the government’s latest statement indicated that it will ease its policies “via pressuring banks to lend more”.

He added that the central bank may further reduce the reserve requirements for banks in the coming months as well as cut interest rates

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