World Economy

China Will Raise State Spending

China Will Raise State SpendingChina Will Raise State Spending

China will gradually increase government spending over the course of this year as planned to support its slowing economy, Chinese media quoted a vice finance minister as saying on Monday.

Zhu Guangyao was quoted by the China Economic Weekly magazine as saying that China would “appropriately increase the size of its fiscal deficit” this year to 2.3% of gross domestic product, as announced by the government in March, Channel NewsAsia reported.

China ran a fiscal deficit of 2.1% of GDP last year.

Finance Minister Lou Jiwei said in March that China’s fiscal deficit should be worth 2.7% of GDP this year after taking into account some $18 billion of cash that was allocated to previous budgets but has not been spent.

“In the second-half of this year, China’s economic growth momentum will further stabilize and strengthen,” Zhu told the magazine.

“There is full confidence that China (can meet) its economic growth target of around 7% this year,” he said.

On China’s protracted talks with the United States to hammer out a bilateral investment treaty that gives both sides mutual access to each other’s markets, Zhu said he hoped for significant progress at the next round of negotiations in September.

China President Xi Jinping is scheduled to visit Washington in September. China and the United States have finished 19 rounds of talks so far with regards to the investment treaty, Zhu said.

  Enters Watchlists

Greece’s full-blown debt crisis and Puerto Rico’s unfolding one have dominated headlines all week, but some of the biggest US investors have China at the top of their worry lists, Reuters reported.

Jeffrey Gundlach, Bill Gross, Dan Ivascyn, Mohamed El-Erian, and David Rosenberg are among the money managers keeping close watch of China where markets have been under severe selling pressure despite moves by regulators to restore confidence.

Chinese markets, which had risen as much as 110% from November to a peak in June, have tumbled more than 20% since June 12 in jaw-dropping volatility as money surges in and out of the market.

Shanghai’s benchmark share index plunged below 4,000 points for the first time since April on Thursday.

“We discuss China in detail at every strategy meeting and we continue to consider it one of several risks we need to keep an eye on,” Dan Ivascyn, Group Chief Investment Officer at Pimco, one of the world’s largest bond fund managers with $1.59 trillion in assets under management as of March 31, told Reuters on Thursday.

For his part, Gundlach, who oversees $73 billion in assets at DoubleLine Capital, said he bought “tons” of Treasuries and Ginnie Maes last Friday, partly because the Shanghai Stock Exchange Composite Index was “signaling trouble by collapsing after blowing off to the upside a la the Nasdaq back in 1999/2000.”

In past years, Gundlach has said the Shanghai Composite was a leading indicator of US stocks. “Like I’ve said, Shanghai 2014-15 is like the NASDAQ 1999-00,” Gundlach said.

Gross, the legendary investor who has been long referred to as the ‘Bond King,’ raised warning flags again this week about the risks in China.

In his Investment Outlook report on Tuesday, Gross said China was one of several events that could precipitate a run on the “new” US shadow banking system, which includes mutual funds, hedge funds and ETFs which are modern banks that are not required to maintain reserves or even emergency levels of cash.

“China is like a riddle wrapped in a mystery, inside an enigma,” Gross said. “It is the ‘mystery meat’ of economic sandwiches–you never know what’s in there. Credit has expanded more rapidly in recent years than any major economy in history, a sure warning sign.”