msnbc.com news services
updated 3/4/2009 11:33:18 AM ET 2009-03-04T16:33:18

China announced an expected stimulus package Wednesday that could help limit the length and depth of the recession in the industrialized world.

A legislative meeting starts Thursday in China and topping the agenda is what the government will do to lift growth rates, which have fallen in the wake of the global economic downturn. As one of the few major economies still expanding, China is being closely watched amid hopes its demand and trade can help the world weather the most severe global slowdown in decades.

Earlier in Asia, Chinese shares rallied, with Shanghai’s index jumping more than 6 percent to close at 2,198.11.

“Obviously, this unusual rally suggests that investors are overly optimistic about what to expect from the legislature. They think the government will do more to boost spending to stimulate the economy,” said Peng Yunliang, an analyst with Shanghai Securities in Shanghai.

As part of a robust national budget that will be unveiled Thursday, China will raise spending on its increasingly potent military 14.9 percent this year, maintaining nearly two decades of annual double-digit defense hikes that have stirred concern in Washington and among Beijing’s neighbors.

In announcing the spending increase Wednesday, a spokesman for the national legislature, Li Zhaoxing, played down worries about China’s military might, saying the boost was “modest” and suitable for world’s third largest economy. Much of the additional funding would go toward salaries and benefits for servicemen, he said.

China’s defense spending is on par with the budgets of Japan, Russia and Britain, but is still dwarfed by U.S. military expenditures, which are nearly 10 times as large. International military experts say China’s defense budget may be much higher than Beijing says because spending on military hardware and other items are not included.

The legislature’s annual session Thursday features a hefty stimulus plan to reinvigorate the flagging economy and ward off the global economic downturn. A government adviser said the spending plan will try to promote consumer spending and sets a goal of 8 percent growth — the same target China has put in budget plans for many years but that it may have difficulty reaching as demand for Chinese exports evaporate in the U.S. and Europe.

“The report will say that the main goal is to stimulate the economy,” said Tan Giok Sie, a Hong Kong businessman and a member of an advisory panel that meets concurrently with the national legislature.

Maintaining a strong rate of growth is believed by officials to be essential to create jobs, raise incomes and stave off unrest in a society that has grown used to steadily rising standards of living. Anything less than 7 or 8 percent, some officials say, would strain stability.

In recent months, the government has unveiled a 4 trillion yuan ($586 billion) stimulus plan and a 850 billion yuan ($124 billion) to expand and revamp an inadequate health care system.

Worried that throwing so much money at the economy would exacerbate already widespread corruption, a group of liberal Communist Party elders have called on the current leadership to be transparent

“We are very concerned that privileged and corrupt individuals may use this opportunity to enrich themselves, damaging relations between the party and the people and exacerbating social conflicts,” said the letter dated Jan. 20 and circulated on the Internet.

The defense spending increase, while still hefty, represents a deceleration from recent years, as the government tries to direct spending elsewhere and tensions with rival Taiwan decrease.

“The global economic crisis affected China as well as other countries. I think this year most countries will cut their military budgets,” said Ni Lexiong, a Shanghai-based international affairs specialist.

The 480.68 billion yuan ($70.27 billion) military budget, follows a 17.6 percent increase last year and 17.8 percent in 2007 — the biggest jump in more than a decade. It also marks the 19th double-digit percentage increase in the past two decades.

Li, the congress spokesman, said the latest figure equals 6.3 percent of the overall budget for 2009, down slightly from last year.

He said the increase would not pose a threat to any country, and that much of it would go to salaries and benefits for China’s 2.3 million-strong military force, the world’s largest.

“The limited military force is for safeguarding the state sovereignty and territorial integrity, and will not pose any threat to any other country,” Li said.

Despite such assurances, the U.S., Japan and others have questioned the reasons behind Beijing’s rapid buildup. The growth of Chinese military power has prompted widespread speculation over possible future conflicts over self-governing Taiwan as well as over contested island chains in the South China Sea and crucial sea lanes in the Indian Ocean.

U.S. National Intelligence Director Dennis Blair said last month that China’s military spending increases “pose a greater threat to Taiwan.” Relations between rival China and Taiwan have warmed recently, but Beijing still threatens to use military force to oppose any move by Taiwan to declare formal independence.

Teng Jianqun, a retired People’s Liberation Army colonel who now serves as deputy secretary general of the China Arms Control and Disarmament Association, said that the growth rate for military spending should go down, but that “the double-digit rate will remain for at least a few years in future.”

More on  China   |   stimulus

The Associated Press contributed to this report.

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