[Premier] Wen Says China ‘Cannot’ Yet Pull Back on Stimulus

From Bloomberg:

China’s Premier Wen Jiabao signaled he will maintain unprecedented government spending to drive a recovery from the slowest expansion in almost a decade.

“China’s economic rebound is unstable, unbalanced and not yet solid,” Wen said today in a speech at the World Economic Forum in Dalian, a city in northeastern China. “We cannot and will not change the direction of our policies when the conditions aren’t appropriate.”

Wen’s remarks reflect a commitment last week from the world’s biggest nations to maintain unprecedented fiscal and monetary measures to secure a recovery from the deepest postwar recession. The comments also may help reassure investors that a slowdown in new loans won’t derail China’s rebound.

“The worst has passed, now it’s about whether China can maintain the strong momentum of a recovery that’s primarily been driven by policy stimulus,” said Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong. “Very weak external demand is the key concern.”

Nine months of falling exports, overcapacity in manufacturing and elevated unemployment have restrained the recovery generated by record lending in the first half of the year and a 4 trillion yuan ($586 billion) stimulus package.

Stock Market

The Shanghai Composite Index plunged into a bear market, or a decline of at least 20 percent, on Aug. 31 amid concern that reduced new lending in the second half could damp growth. The index has since pared the slide to 16 percent, and remains up 37 percent from a year ago....MORE