China to announce extra stimulus as fears of social unrest rise

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The Independent Online

China is expected to announce fresh economic stimulus measures today to shore up its rapidly slowing economy and ease simmering social unrest.

Premier Wen Jiabao is expected to outline new spending plans in a speech to the National People's Congress designed to shed more light on 4 trillion yuan (£413bn) of health and welfare expansion announced in November. An official said yesterday that the speech to the National People's Congress would now include new stimulus measures.

China's Shanghai Composite Index rose 6.1 per cent, its biggest jump in four months. Other Asian markets also rose and the FTSE 100 jumped 3.8 per cent, underlining China's importance to the global economy.

China's growth has dropped from 13 per cent in 2007 to 6.8 per cent in the most recent quarter. The rapid slowdown in the global economy, and in the US in particular, has hit China's export-led economy, which has been at the heart of wider Asian growth in recent years. While extremely high compared with growth levels in mature economies, the slower pace is well below the 8 per cent the Government needs to create jobs for the millions of rural workers heading for China's cities.

The slowdown has left 20 million rural labourers unemployed, with 7 million college graduates also seeking work. The authorities are desperate to stop sporadic clashes between police and protesting workers turning into more general unrest against the Communist Party.

Standard Chartered predicted last week that stimulus spending could hit 10 trillion yuan in the next two years, citing Chinese officials.

Some economists fear that China could implode if the country's economic woes undermine the legitimacy of the authoritarian Communist Party, which has maintained its legitimacy by increasing prosperity.

The Communist Party's Politburo pledged last week that China would "massively" boost government investment and increase social security. But there is disagreement within China about whether stimulus measures should target new infrastructure projects or increased social spending, which could boost domestic consumption.

The official Xinhua News Agency reported in January that "mass incidents" could increase sharply. Zhou Yonkang, a Politburo member and a former head of public security, called on the authorities last month to do "everything possible" to combat unemployment.

A purchasing managers' index showed signs that the economy's contraction could be easing. The index, from the China Federation of Logistics and Purchasing, rose to 49 in February from 45.3 in January, with a score below 50 showing a shrinking economy.

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