China state researcher sees stimulus exit in 2nd quarter 2010

BEIJING, Nov 24 - China should consider winding down stimulus spending late in the second quarter of 2010, a researcher with a state planning agency has said, warning the timing of an exit will be tricky and will depend on inflation trends.

Liu Manping, an expert with the National Price Monitoring Centre, wrote in the latest issue of the Chinese-language Outlook Weekly magazine that heavy government-led spending efforts have restored economic growth to a point where there is now a case for exiting stimulus spending.

"The momentum towards economic revival has been established, and there is an opportunity to exit, but this writer believes that now is not the time to exit from stimulus policies," Liu wrote in the magazine, which reached subscribers on Tuesday.

"The foundation of national economic revival is still not stable, solid and balanced. Although economic growth has picked up, to a large degree it is dependent on impetus from government investment."

Weighing these factors against risks of over-investment, Liu writes that "the end of the second quarter of 2010 may offer a window for exiting".

Liu's views do not necessarily represent the government's. He has aired them before recently, including on his Chinese-language blog .

But the appearance of his views in this high-profile official outlet reflects deepening debate among experts and policy-makers about when China should withdraw extraordinary state spending.

Outlook Weekly is issued by the Xinhua news agency, a chief mouthpiece of official opinion, and the National Price Monitoring Centre is an arm of the National Development and Reform Commission, which steers industrial policy.

Last year, China announced a sweeping 4 trillion yuan ($585 billion) economic stimulus spending package over two years to counter the global economic downturn.

But officials have begun to voice worries about asset price rises, while others fear the economic recovery remains too fragile to wind down the heavy government spending.

An opinion piece on Monday in the Financial News, a newspaper published by the central bank, said speculation in the property market was akin to a time bomb that could threaten future growth. [ID:nPEK281754]

China's housing prices have been rising since March, propelled by a slew of government measures, from lower downpayments and mortgage rates to tax cuts.

The government faces a "dilemma" over when and how to exit, facing both fears of inflation and fears that self-sustaining growth and job expansion remain too feeble, Liu wrote.

"The most telling indicator will be changes in inflation, that is CPI trends," Liu wrote. "By the second quarter we will be able to judge whether the economy has fully recovered."

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