Stocks surge after China stimulus

Asian markets have risen sharply, a day after China announced a huge investment plan to kick-start its slowing economy.

Stocks leapt in Japan, China and Hong Kong, buoyed by China's efforts to sustain its growth rates, on which many Asian economies depend.

About $586bn (£370bn) is to go into housing, infrastructure and post-earthquake reconstruction in China over the next two years.

Correspondents say the package is a response to falling growth and exports.

There will also be significant cuts in company tax, while banks will be allowed to lend more to projects involving rural development and technical innovation.

The government also promised a shift to a "moderately easy" monetary policy.

"The investment expansion should be done swiftly and forcefully," a State Council meeting chaired by Premier Wen Jiabao concluded.

"It's a huge package," Dominique Strauss-Kahn, managing director of the International Monetary Fund, was quoted as saying by the Reuters news agency after a meeting of the Group of 20 finance officials in Sao Paulo, Brazil.

"It will have an influence not only on the world economy in supporting demand but also a lot of influence on the Chinese economy itself, and I think it is good news for correcting imbalances."

Market bounce

Chinese stocks rose sharply, with the Shanghai Composite Index ending 7.3% higher at 1,874.80.
Market bounce

Chinese stocks rose sharply, with the Shanghai Composite Index ending 7.3% higher at 1,874.80.


Chinese exports have been a key driver of the economy

Tokyo's Nikkei 225 stock average closed up 5.8% to 9,081.43, helped by the weaker yen, while Hong Kong's Hang Seng Index was up 3.39% at 14,726.59.

European shocks were also given a lift by the Chinese news.

The UK's FTSE 100 index ended the day up 38 points or 0.9% to 4,404, while Germany's Dax advanced 87 points or 1.8% to 5,026.

However, BBC Shanghai correspondent Chris Hogg said much uncertainty remained over the details of the package, and US stocks ended lower on Wall Street..

"What's not clear is how much of the sum announced is new money, in addition to current budgets," he said.

"And we don't know how the total money will be divided up between the different spending proposals and plans for tax relief".

Companies likely to benefit most from the government's investment plans did best, including banking, steel and construction firms.

Factory closures across the border in southern China have badly depressed China's manufacturing sector.

Commodity cuts?

Analysts said the stimulus package would not save China from the effects of the global financial slowdown, but could help to protect it.

China, and Asian economies who increasingly depend on it as an export market, had become used to double-digit growth figures.

But in the third quarter of this year growth slipped to 9%, its lowest level in five years.

Though this might be considered healthy elsewhere, the fall has been taken as a worrying sign in China where the government has relied on rapid growth to maintain political stability.

Interest rates

The Chinese government has cut interest rates twice in recent weeks, and began considering ways to avert a more dramatic economic slowdown in October.

These included measures to stimulate the property market, prompt construction of low-cost housing, and increasing export rebates on thousands of products.

Figures on Monday showed wholesale price inflation fell in October, which analysts said made the chance of another rate cut more likely.

Producer price inflation declined to 6.6% in the 12 months to October from 9.1% in September, according to the National Bureau for Statistics.

"Monetary policy is completely free to act to counter to any downside risks," said Ken Peng, an economist with Citigroup in Shanghai.

"It's still necessary for monetary policy to complement the fiscal package."

President Hu Jintao is to travel to Washington later this week for a global economic summit meeting.