Leader says China will spend more to grow

BEIJING -- In a world with precious little good economic news, all eyes this week swung to China.

Investors were cautiously cheered by the first signs that a massive $585 billion stimulus program was spurring economic rejuvenation. A key purchasing managers index rose for the third-consecutive month. And there were hints that Premier Wen Jiabao might even announce a second stimulus package at this week's annual meeting of the National People's Congress, China's rubber-stamp legislature.

As it happened, Wen on Thursday disappointed hopes of a new round of pump-priming. But in a nationally televised address, the Chinese premier vowed to do whatever is needed for China to grow at an annual rate of 8% this year. "We will significantly increase government spending," he told the opening session of China's top legislature, the National People's Congress (NPC).

Western investment banks expect China's economy, which was growing at a nearly 12% annual rate in mid-2008, to struggle to hit Wen's goal. Growth slowed to an annual pace of 6.8% in the final three months of last year. But analysts say the government is far from running out of weapons to fight the global downturn.

"We know that there are projects amounting to $1.1 (trillion) to $1.5 trillion that officials can authorize whenever they feel it's time," says economist Stephen Green of Standard Chartered Bank in Shanghai. "But keeping stuff in the back pocket is a good idea, as it will be at least two years before exports recover."

The financial crisis has hit China's job-rich export processing sector hardest. Slowing U.S. and European economies mean fewer orders for Chinese makers of furniture, toys and clothing. "It grieves me too much to reveal our sales figures," says Yan Wufang, general manager of bra maker Shantou Yaofa in Guangdong province.

Government policies such as a 17% tax rebate "have been good for our business, but conditions remain very difficult. Some foreign clients placed orders but failed to pay up," says Yan, who has laid off dozens of workers in recent months.