China's central government will contribute just over a quarter of the 4 trillion yuan ($586 billion) economic stimulus package aimed at sustaining growth amid the global financial crisis.

The central authorities will provide 1.18 trillion yuan to fund increased spending on railways, roads, healthcare and housing, Mu Hong, vice chairman of the nation's top economic planning agency, said in Beijing today. The rest is expected to come from local authorities, companies and other sources, including overseas investors, he told a news briefing.

Premier Wen Jiabao said on Nov. 9 the government is switching to a ``pro-active'' fiscal policy to counter slowing exports, output and investment in the world's fastest-growing major economy. The stimulus package will lead to a higher budget deficit in 2009, Vice Finance Minister Wang Jun said today.

``The message from China is that they are really doing their part,'' said Tim Condon, head of Asia research at ING Groep NV in Singapore. ``They are engaged in the heavy lifting and other countries now need to step up and also do something like that to stimulate domestic demand and avert so steep a slowdown in global growth.''

The 4 trillion yuan package and the 1.18 trillion yuan contribution from the central government is all additional spending, Mu told reporters today after the news briefing.

``Yes, it's all new,'' he said. ``Local governments and other agencies will make their own plans to stimulate growth.''

Wider Deficit

The higher spending and the impact of tax cuts and higher export rebates will lead to a wider budget deficit in 2009 and more sales of government bonds, Wang told the same briefing.

China had a budget surplus of 71 billion yuan in 2007, compared with an original government forecast for a deficit of 245 billion yuan. The government in March forecast a deficit of 180 billion yuan for 2008, which would be less than 1 percent of GDP.

``The expansionary policy will definitely have an impact on our budget for the next two years,'' Wang said. ``But the size is completely manageable.'' Tax cuts will reduce fiscal revenue by 300 billion yuan over the next two years, he said.

The central government will help local authorities fund the spending they will be expected to make under the stimulus package, Mu said.

``We have noticed the difficulties for local governments to participate in the increased spending,'' the NDRC vice chairman said. The central government may spend a larger proportion of the investment itself or `` allow local governments, after getting approval, to raise funds via appropriate channels.''

Slowing Growth

He did not say whether the government will allow local authorities to issue bonds. Media reports have said that the central bank is studying whether to allow local governments to offer debt through bond issues.

China's economy, which has expanded by more than 10 percent a year since 2003, grew by 9 percent in the three months from July to September, the fifth straight quarterly slowdown.

Morgan Stanley last week cut its growth forecast for China for 2009 to 7.5 percent from 8.2 percent. China International Capital Corp estimates growth of 7.3 percent while JPMorgan has a forecast of 8.7 percent.

Even facing a slowdown, ``China's economic fundamentals are still good,'' Mu said today.

``As long as we implement the measures forcefully and properly, we expect to have pretty good results,'' he said. ``We are already making new preparations for the next step.''

Railway Spending

The first tranche of central government spending, amounting to 100 billion yuan, will be spent during the fourth quarter, Mu told the news briefing. Most of the allocations were made at the end of October because the government had been planning the stimulus package during the first half of the year, he said.

Of the total, 10 billion yuan will be spent on welfare housing, 34 billion yuan on rural infrastructure and welfare, and 25 billion yuan on key infrastructure projects including roads, railways and airports, Mu said. Another 13 billion yuan has been allocated to health care, education and social welfare, 12 billion yuan to energy, environmental protection and emission reduction, and 6 billion yuan on technology upgrading and industrial restructuring.

(Bloomberg, Nov 14, 2008)