The world waited with baited breath on Thursday for a beefed-up China stimulus that did not come, but the non-news should generate more a sense of relief than disappointment. Relief that Beijing thinks its policies are hitting the mark, that the economy is getting back on its feet – and that it has the fiscal power to give an extra push, though only if needed bolstered by predictions by China's Premier that the economy would grow eight percent without a stimulus plan. In the lead-up to Wen Jiabao's annual report to parliament, global markets jumped in the hope that he would unveil an expansion, perhaps even a doubling, of the $585 billion stimulus package announced on Nov. 9. Wen did no such thing in his speech, as close as China comes to a ‘state of the union' address, describing the original package as a “dramatic increase” in government investment. “It reflects the confidence of top leaders that China will be able to maintain 8 percent growth with the initial stimulus and that there is no need to make it bigger,” said Xing Ziqiang, an economist at China International Capital Corp in Beijing. The Shanghai stock market which bounces up and down on the policy winds, soared 6 percent the day before Wen's speech in anticipation of more pump-priming. In its absence, the main index still climbed 1 percent on Thursday. To be sure, China is not shying away from government spending, turning on the fiscal taps to make up for a collapse in exports and a property slump. Wen said the 2009 deficit would reach 950 billion yuan, or just under 3 percent of GDP - its largest shortfall in history, according to HSBC. Still, that is far less than the deficit in the United States, proposed at 12.3 percent of GDP. Fitch Ratings said on Thursday that it estimated China's central government debt at 21.9 percent of GDP, about half that of its peer group of countries, giving policymakers more room for debt-financed spending. But the hopes of investors who looked to Wen's speech for a major stimulus announcement were, to a certain extent, misplaced. Despite double-digit percent rises in spending on education, health care and welfare, these sectors continue to account for a small part of total expenditures. Health care, for instance, accounts for just 2.7 percent of projected central government outlays this year - or $13 for every man, woman and child. When the stimulus was unveiled, questions were raised about how large the package really was. Beijing has approved just $36 billion of extra investment so far, or less than 6 percent of the headline stimulus. If China is to deliver on its 4 trillion yuan commitment, most of the projects look likely to get off the drawing board in the later stages of the two-year plan. The degree to which any of this is new spending, above and beyond normal increases, is also unclear. When Wen described fiscal policy as “prudent” a year ago, he said China was aiming for a 22.6 percent rise in expenditures. As it turned out, they rose 25.4 percent last year. On Thursday, with China's fiscal policy now on “proactive” footing, Wen said the goal was a mere 22.1 percent spending rise.
