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Private sector can be given a bigger role

By Hong Liang (China Daily)
Updated: 2008-11-12 15:32

The government's 4-trillion-yuan ($586 billion) economic stimulus package is a bold move that some economists say can be compared, at least in scale and spirit, to the "New Deal" that US president Franklin D. Roosevelt launched so successfully to lift the United States from the quagmire of the Great Depression in the 1930s.

Although full details of the Chinese government's program have yet to be released, the clarity of its direction and urgency of its implementation are not in doubt. This two-year program not only shows the government's commitment to preserving the fruits of economic reform and opening-up in the past 30 years, but also holds the promise of reshaping the nation's economic landscape in the longer term.

Long before the global impact of the subprime mortgage crisis was universally acknowledged, many economists had noted that the slowdown in Chinese exports to the US and some other developed economies could help China speed up the process of economic balancing by expanding the domestic sector. The latest government initiative has removed any doubt about their prognosis.

At the core of the 4-trillion-yuan program is prompt development of infrastructure projects that are seen to be vital to promoting economic growth. The estimated total investment in these projects has yet to be disclosed. But economists surmised that a large part of those investments will include the earlier announced 2-trillion-yuan expenditure on improving the nationwide railway system over the next five years.

The government's program also encompasses initiatives to ensure stable and healthy development of the property market and the stock market. What's more, the government has called on banks, insurance companies and other financial institutions to greatly increase their support to economic growth. Also included in the initiatives is a proposal to rationalize domestic fuel prices under a workable scheme.

One of the initiatives that will most certainly capture the interests of domestic and overseas vendors is the call to employ all disposable means to raise people's income and their spending power. This initiative will focus on the dismantling of the administrative and policy barriers that are seen to deter consumer spending so as to provide an environment that raises the expectations of consumers and is conductive to the expansion of consumer demand.

In the implementation of this economic stimulus package, the government has the opportunity to deepen economic reform and opening by allowing greater participation by the private sector, including foreign investors and enterprises.

There could be a lesson to be learned from the Japan model in which the national railway system apparently co-exists seamlessly with the private lines that crisscross the country. In Hong Kong, both the subway system and the railway lines were built in cooperation with banks, which provided the financing, and property developers, who provided income from projects on various stations.

The private sector could play an even greater role in promoting consumer spending. For instance, foreign banks that have a wealth of experience in consumer credit should be given greater freedom in expanding their credit card and personal loan businesses at least in the cities.

Economists have long contended that the single most significant deterrent to consumer spending on the Chinese mainland has been the lack of a dependable social safety net. This shortcoming is seen to have encouraged families in China to keep a much larger proportion of their household income in bank deposits than families in many other economies.

Social security can be a frighteningly expensive and complicated proposition. But there are ways in which part of the burden on the state can be transferred onto the insurance companies and private health care organizations.

Giving the private sector a greater role in the stimulus package can turn the challenge of a global economic downturn into an opportunity to restructure the domestic economy for sustainable and balanced growth. That's truly a great deal.