MercoPress. South Atlantic News Agency

China is considering stimulus package and soft monetary policy

China is considering a stimulus package spending anywhere between the equivalent of 29 and 58 billion US dollars to stimulate the economy and may ease monetary policy towards the end of the year, according to JPMorgan Chase & Co.

"Measures would include tax cuts, stabilizing capital markets and supporting the housing market" said a report by Frank Gong, JP Morgan economist based in Hong Kong released on Tuesday. The sum equivalent to 1 to 1.5% of China's GDP, would be additional to the almost 75 billion US dollars earmarked in the budget for the rebuilding of Sichuan province devastated during last May's earthquake. Since July, Chinese policy makers have put extra emphasis on sustaining growth rather than cooling inflation in the world's fourth-biggest economy as the outlook for exports dims. Economic growth has cooled for four quarters and industrial output grew last month at the slowest pace since February 2007. "The top leadership is carefully considering an economic stimulus package" Gong said who added that the central bank would ease monetary policy "later in the year" as inflation eases and growth in China's foreign-exchange reserves begins to slow. China will raise electricity prices and "reform" gasoline and diesel prices after the Olympic Games, forecasted Gong. Fuel prices are controlled by the state. China's currency reserves, the world's largest, rose 36% to 1.81 trillion US dollars at the end of June from a year earlier while inflation cooled to 6.3% in July from a 12-year high of 8.7% last February. Export and investment growth accelerated in July and retail sales increased by the most since at least 1999. While consumer price-gains eased, producer prices rose at the fastest pace since 1996. But a weaker production growth may foreshadow softening demand for Chinese goods as the US, Japanese and European economies falter. China's economy grew 10.1% in the second quarter, still the fastest pace of the world's 20 biggest economies. GDP expanded 11.9% last year. Last July the government dropped references to a "tight" monetary policy and on August 15 the central bank said it would "fine-tune" monetary policy as cooling overseas demand poses risks for the economy. The central bank has kept interest rates unchanged this year after six increases in 2007, trying to avoid attracting more money from abroad to an economy already flooded with cash. In July, it eased lending quotas for national banks by 5% and regional lenders by 10%, according to reports by Goldman Sachs Group Inc., BNP Paribas SA, China Merchants Bank Co., and Industrial Bank Co. The next move would be to cut the portion of deposits banks are required to hold as reserves from a record 17.5%.