China okays $586 bln spending plan to bolster growth

By Alan Wheatley, China Economics Editor

BEIJING (Reuters) - China has approved a 4 trillion yuan (374.5 billion pounds) government spending package to boost domestic demand and help the world's fourth-largest economy ride out the global credit crisis, Xinhua news agency said on Sunday.

The State Council, or cabinet, also announced a shift to a "moderately easy" monetary policy, possibly foreshadowing further reductions in borrowing costs on top of three interest rate cuts made since mid-September.

The People's Bank of China had already relaxed its monetary stance to "prudent and flexible" from "tight" in the summer as inflation crested and economic growth started to slow.

"With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro-economic policies to deal with the complex and changing situation," according to a statement relayed by Xinhua.

Officials have been flagging measures to pump up demand since gross domestic product growth slowed unexpectedly sharply to 9.0 percent in the third quarter from 10.4 percent in the first half.

Economic conditions took a further turn for the worse in October. Still, analysts were impressed by the size of the stimulus package, which amounts to nearly 15 percent of annual economic output spread over little more than two years.

"This is pretty major," said Arthur Kroeber, head of Dragonomics, a Beijing economic consultancy. "It reflects the official view of how serious this problem is and shows that this is a government that can mobilise enormous resources to stimulate the economy when they put their minds to it."

By comparison, the United States sent out about $100 billion in tax rebate cheques this summer, while Germany last week agreed to a 50 billion euro pump-priming plan.