China to focus on public spending, eyes deflation

BEIJING (Reuters) - China's ruling Communist Party said on Monday that a big boost in public spending will be at the heart of its efforts to shore up economic growth this year, while the country's central bank warned of deflationary risks.

The Party's Politburo -- a policy-setting council of 25 senior officials -- reaffirmed that the government will seek to "enhance the role of domestic demand in promoting economic growth," as export demand slows, according to an official account of the meeting issued by the Xinhua news agency.

Chinese officials have often said they will combat slower growth with domestic spending initiatives.

But the statement underscored the importance of public spending just weeks before the national parliament formally approves this year's economic plans. The Politburo vetted the government's annual report to the parliament, which convenes in early March.

China will "increase government investment on a wide scale, and initiate broad industry readjustment and revival plans," said the report on the meeting.

"Actively expand domestic demand, especially consumer demand, and enhance the driving role of domestic demand for economic growth," it said.

The report was short on details, but said China would massively increase spending on infrastructure projects and improving social security.

China is already disbursing 4 trillion yuan (400.7 billion pounds) in stimulus spending that it announced late last year.

Some economists fear, however, that the public investment drive will encourage excessive investment in sectors already plagued by over-capacity, further unbalancing growth.