OPINION> Zhu Qiwen
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OPINION> Zhu Qiwen
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Fine-tune the focus of stimulus policies
By Zhu Qiwen (China Daily)
Updated: 2009-08-10 07:49
A premature change of counter-crisis policies will undermine much of China's previous efforts to fight the global recession. That is why Chinese officials are recently selling hard their adherence to a proactive fiscal policy and the moderately loose monetary policy they had adopted since later last year. However, while it is necessary to keep a consistent and stable policy condition for the Chinese economy to cement its recovery, the priority of policy support must be adjusted in a timely manner to tackle problems resulting from an unbalanced economic rebound. The joint press briefing held by the People's Bank of China, the Ministry of Finance and the National Development and Reform Committee last Friday has focused on driving home the message that the country will not change course on its way to take the lead in stepping out of the global financial and economic crisis. Given the strong rebound of the Chinese economy, which expanded 7.9 percent in the second quarter after registering a 6.1 percent GDP growth in the first quarter, it was not an exaggeration for Su Ning, deputy governor of the central bank, to claim at the press briefing that China's anti-recession measures have been by far the most successful in the world. Yet, the success of a proactive fiscal policy and a moderately loose monetary policy in stoking an investment-led recovery has given rise to doubts about potential inflation pressure and asset bubbles if bank lending continues to surge. The increased volatility in the domestic stock markets, to a certain extent, bears testimony to growing investor fears that the government may have to soon apply the brake on credit supply. As the world economy remains largely sluggish and the domestic consumer inflation stays negative, Chinese policymakers do have good reasons not to put combating inflation high on the agenda at the moment. But the problem for them now is not to persuade the public that there will be no monetary tightening any time soon. The real challenge is to address the structural problem of investment growth and whether it will continue to serve as a turbo-charged growth engine for the economy. Government-led infrastructure projects and investment by big State-owned enterprises have so far accounted for most of the growth momentum the engine of investment provides to the national economy. On the one hand, it is hard to find more such investment projects to keep demand for bank loans high. On the other hand, too much of such investment has crowded out private investment while arousing public suspicion about the quality of those bank loans. Domestic media has already cast doubts on the necessity and profitability of building so many high-speed roads. It is estimated that the road fee that local governments can collect at present is not even enough to pay the interest of bank loans they used to build all these high-speed roads. If the country is to keep its investment engine humming, policymakers must do more to stimulate private investment. A booming private sector is essential to the long-term development of the market economy in this country. More important, the private sector plays a huge role in creating new jobs for China's growing labor force. No recovery can be called solid unless it leads to creation of jobs. Figures from the National Bureau of Statistics show that in the first half of 2009, electricity consumption by small and medium-sized enterprises, mainly privately-owned, decreased by 48.9 percent year on year compared with a 2.7 percent dip by big state enterprises. Less electricity consumption means less production and thus less job-creation. Chinese policymakers should come up with more fiscal and monetary support measures for accelerating private investment to help sustain the current recovery. It may be too early to swing from monetary easing to credit tightening. But, it will never be too early for policymakers to swing in to action in correcting skewed incentives for a balanced and sustainable recovery. (China Daily 08/10/2009 page4) |
