China plans massive stimulus, short selling ban extended, shares rise: Economy roundup

In good news for the Australian economy, Chinese Premier Wen Jiabao has said more Government spending is needed to cushion the nation against the global financial crisis.

While Wen has not confirmed reports of any new stimulus packages on top of the $905 billion already promised, he emphasised the importance of both Government and private investment.

“Responding to the financial crisis requires substantial Government investment, and at the same time we must take seriously guiding investment of social and private capital,” Wen said.

“We must remain sober-minded, increase our sense of peril, and lean towards taking a grimmer view of trends,” Wen told members of the Chinese People’s Political Consultative Conference. “We must make long-term mental preparations to respond to even greater hardships.”

The comments have driven speculation that another stimulus package will be announced to help boost the world’s third-largest economy. China’s GDP was just 6.8% in the fourth quarter of 2008, the weakest figure in seven years.

Former head of the Chinese statistics bureau and member of the central bank’s monetary policy committee, Li Deshui, says new spending plans will be announced today.

Any Chinese stimulus package will be welcomed by Australian companies, given China’s importance as a trading partner and buyer of our resources.

Short selling ban

The Australian Securities and Investments Commission has extended the ban on short-selling stocks for another three months. The ban was due to expire by tomorrow, but ASIC announced today it will remain in place until 31 May due to volatility in global markets.

“ASIC has decided to continue with its cautious approach and keep the ban in place,” it said in a statement. “Any possible loss of market efficiency or price discovery as the result of the continuation of the ban is justified given the current market circumstances.”

Shares rise

ASIC’s move comes as the Australian sharemarket dropped yesterday to five-and-a-half year lows, but the market opened 0.9% higher today after rallies in both Europe and Wall Street.

The benchmark S&P/ASX200 index was up 35 points or 1.1% to 3201.4 at 12.05 AESDT. The Australian dollar also gained some ground to US65 cents on the news that a second Chinese stimulus package is imminent.

NAB shares dropped 1.3% to $16.98, while Westpac gained 0.3% to $15.74. ANZ also fell 0.2% to $12.43, as Woolworths dropped 2% to $25.96.

Overseas, Wall Street enjoyed a rally after a five-day losing streak, with commodity prices rising on the anticipation of more Chinese stimulus. The Dow Jones Industrial Average gained 148.82 points or 2.23% to 6875.84. Oil prices gained 9% to $US45 a barrel.

But the bad financial news continued with a new study from FirstAmerican CoreLogic showing 20% of Americans owe more on their mortgages than the value of their property. Around 8.31 million properties were suffering negative equity by the end of 2008, the report says, up 9% from September.

More funding for SMEs

Meanwhile, good news for small businesses has arrived in the form of the Commonwealth Bank’s Small Business Investment Package, which it says is designed to support short and longer term needs of struggling enterprises.

Ian Narev, head of the Commonwealth Bank’s business and private banking division, said the bank is well capitalised and will use its strength to help SMEs.

“There’s a misconception out there that small businesses do not have access to the lending facilities they need to operate in the current environment. We want to make it clear that we are open for business for small business.”

“The Commonwealth Bank has lent, and will continue to lend, to credit-worthy small businesses. Our lending criteria remain responsible, not restrictive.”

The package, which is available for businesses with less than $10 million in turnover, includes a rate cut to the CBA Better Business Loan, over 20 free Small Business Forums in regional and capital centres, and a discounted investment spend interest rate.