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Gov't Looks to Stimulate Domestic Demand

The Chinese government will further study policies to boost investment and jump-start domestic demand to add growth momentum to the economy next year, a senior official said on Monday.

"A prominent problem of the economy is that it's under increasing downward pressure," Han Yongwen, secretary-general of the National Development and Reform Commission, said on the commission's website.

"Weakening external demand will translate into slower export growth, weaker corporate investment and dwindling consumption," he said.

China's economy has been slowing down over the year as turmoil in the global financial market has dented consumer confidence in regions such as the European Union and the United States.

Weaker foreign demand has dragged economic growth down to 9 percent year-on-year in the third quarter, down 2.3 percentage points from the same period a year ago. GDP growth is poised to end below 10 percent for the year, the lowest level in five years.

"The basics of the economy are sound and there is enormous room for enhancing domestic demand and macro policies," Han said.

The central government has moved quickly over recent months to roll out policies.

In the past six weeks, it has reduced interest rates three times and also lowered the reserve requirement for local banks.

Meanwhile, it also said it would launch a plethora of infrastructure projects and increase spending on social welfare as part of its methods to prop up domestic demand.

The central bank has also decided to end credit quotas, a measure it put up in the beginning of the year to rein in loan growth, its spokesman Li Chao told the Xinhua News Agency.

The move came as lending has been shrinking over recent months, because local lenders are unwilling to extend new loans with deteriorating business outlook.

Ken Peng, an economist with Citigroup, said: "Reducing interest and reserve requirement rates could help lower cost of capital concerns, but would unlikely increase risk tolerance and generate additional lending."

(China Daily November 4, 2008)

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