Stimulus package to push long-term growth

As the international financial tsunami spreads to the whole world, darkening the gloom over the global economy, China has come up with a package of stimulus policy to boost its economy.

At a recent State Council meeting presided over by Premier Wen Jiabao, the central government vowed to adopt a proactive fiscal and a moderately loose monetary policy and take more forceful measures to spur domestic demand and promote a steady and relatively rapid economic growth.

The government announced a 4 trillion yuan ($586 billion) investment package before 2010. It ranges from building affordable houses for urban low-income residents to constructing major transportation networks and rural infrastructure; from stepping up development of medical care, culture and education to ecological construction; and from pushing for economic restructuring and innovation to improving people's living conditions.

To step up the construction pace, the central government has decided to allot an additional 100 billion yuan investment for this year.

All these measures serve to show the shift in the country's macro-control policy, according to Luo Yunyi, director the Institute of Investment Research under the National Development and Reform Commission (NDRC). The country had long clung to a prudent fiscal and tightened monetary policy to prevent the economy from overheating.

"To expand domestic demand through increasing fiscal investment is a viable short-term tool to offset the negative influences caused by the current export decline and inactive consumption. But it is also badly needed in the long run given that the country has to think over how to make full use of its huge size of savings and to meet the conditions for its accelerated process of urbanization and industrialization," he said.

It is expected that the stimulus package will help the sluggish markets and enterprises regain confidence. In the aftermath of the 1998 Asian financial crisis, China also turned to a proactive fiscal policy and that contributed a lot to the country's strong economic performance in the ensuing years.

"The unprecedented economic crisis in a century does need a forceful financial policy to counter it. The central government got to the point when it decided at the recent executive meeting to resort to a moderately loose currency policy because too much loosening may push inflation up once again," said Tang Min, vice-secretary-general of the China Development Research Foundation.

Different from the mainly currency-centered policy, such as lowering interest rates, taken by most countries to cope with the ongoing financial crisis, the Chinese government has also adopted a proactive financial approach alongside monetary measures.

Currency policies alone cannot solve the country's emerging economic problems in the current situation when domestic banks remain reluctant to lend and enterprises fall short of production confidence.

"The enormous economic stimulus plan is not meant to directly rescue the rocky financial organs as the US did. It will be used for infrastructure construction and improvement of people's medical care, culture and education. This will not only stoke economic growth but also press ahead with the country's structural reforms," he said.

According to Zhao Xijun, vice-president of the School of Finance under the Renmin University of China, the ongoing international financial crisis presents an occasion to test the governing capability of the Chinese government.

"The government's responsiveness to changed economic situations at home and abroad and its latest demand-boosting investment package have fully indicated its rich experiences and sophisticated tactics in driving the market economy," Zhao said.

"In the long term, all these measures will lay a solid foundation for an enduring and steady growth of the national economy."

By appropriating an added 100 billion-yuan investment in the fourth quarter of this year, the central government has demonstrated its determination to take immediate steps to counter the otherwise contracting economy in the context of global economic slowdown.

But how to ensure an effective use of the money remains a key issue. At an emergency meeting held by the NDRC, a clear-cut principle was laid out for the utilization of this huge amount of central government fund.

According to the country's top economic planning body, the additional money is due to be used in fields related to people's livelihoods, such as solving and improving people's housing conditions and constructing rural infrastructure.

The money will also be spent on the construction of the country's transport networks, ranging from pivotal railways, highways and airports, it said.

The NDRC also demanded the government money is used more for grassroots medical care, education and culture, especially those in the underdeveloped western regions.

To step up the country's economic restructuring and industrial upgrade, the NDRC said some innovative and hi-tech enterprises are due to get government financial supporting.

The article is based on a report published in People's Daily yesterday

(China Daily 11/12/2008 page8)