In China, a New Round of Stimulus

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BEIJING -- Spooked by a sharply slowing economy, China's leaders have begun opening the financial spigots to build still more roads and airports and subsidize consumer purchases, reprising measures that enabled the nation to sail mostly unscathed through the last great global recession.

But the leaders are signaling that the latest round of stimulus spending will fall far short of the four trillion renminbi, or $585 billion at the time, that the government poured into the economy in 2008 and 2009. That spurred a torrent of bank lending, part of it for dubious projects that many experts say will wind up bankrupt in coming years.

The government has made no formal announcement of a stimulus program, and an article in Wednesday's People's Daily, the Communist Party's leading newspaper, quoted leading Chinese economists as suggesting that any efforts to bolster growth are likely to be measured. Markets fell on Wednesday after the article and other news from Beijing indicated that China's planners remained cautious about engaging in a huge additional stimulus program.

"The Chinese government's intention is very obvious: It will not unveil another massive stimulus plan to stimulate economic growth," said the article, which did not cite any official sources. "Current policies to stabilize growth will not repeat the old way of stimulating growth three years ago."

But financial analysts and others say the evidence of a new round of major investments is strong. The National Development and Reform Commission, the state body that executes economic strategy, has approved scores of major new infrastructure projects since the start of April, including clean-energy ventures like hydropower stations, four new airports and three renovations or expansions of big steel mills.

That follows accelerated approvals earlier this year for at least two other airports and a subway in Nanjing. And that does not count new projects announced by local governments, apparently with Beijing's blessing, including highways, sewage treatment plants and a 350 billion renminbi, or $55 billion, investment by state corporations in the Chongqing municipality in south-central China.

Beyond bricks and mortar, the government appears to be reviving a cash-for-clunkers program that spurred automobile sales during the last recession, offering hefty subsidies to those who buy new small cars and perhaps buses, trucks and farm vehicles. Some reports suggest the cash incentives will extend to home appliances, similar to another 2009 program.

"It's going to do a lot" to raise growth rates, Stephen Green, an analyst at Standard Chartered Bank in Hong Kong, said in an interview. "You can argue about whether it's a stimulus package or an investment policy or just supporting growth. But it's clear they're authorizing projects, many by corporations that have been waiting a long time to build their capacity."

More is coming. On Wednesday the State Council, a body roughly akin to the White House cabinet, ordered plans for 20 more major projects in seven so-called strategic industries like advanced equipment manufacturing and energy conservation.

"It is an important and strategic task to develop strategic emerging industries, particularly when the economy is facing downward pressure," Premier Wen Jiabao, the council's chairman and the government's economic point man, was quoted as saying by the state-run Xinhua news service.

There also are suggestions, though no evidence yet, that the government may seek as well to revive its suddenly anemic market for exports. In a March speech to exporters, Vice Premier Wang Qishan set a 2012 goal of a 10 percent rise in exports, well above the 4.9 percent year-on-year growth recorded in April.

This burst of activity aims to raise a gross domestic product growth rate that most other nations would envy, but which Beijing regards as dangerously low. The Chinese economy grew by 8.1 percent in the first quarter of 2012, its worst performance since the global economic crisis. The government projects that 2012 growth will sink to 7.5 percent, and although official estimates are reliably understated, the figure underscores the government's worries.

Part of the concern stems from the Communist Party's desire for a show of strength and stability when the party's leadership turns over at a major convocation expected this autumn. More than that, however, officials have long feared that a slowdown in new jobs and income growth will spur more civil unrest in a nation that already experiences thousands of protests each year.

Financial analysts and economists generally expect the new measures to bolster growth. But whether that is an unalloyed blessing, they say, is considerably less clear.

Some say too much of China's breakneck growth in recent years has been based on debt issued to finance highways and other projects beyond the nation's current needs. Another injection of debt may keep the growth of the gross domestic product above 8 percent, China's self-proclaimed minimum, but at the cost of worsening the long-term debt problem.

"The more debt China creates to generate growth, the more difficult the ultimate adjustment," Michael Pettis, a Peking University professor and scholar at the Carnegie Endowment for International Peace, wrote in a newsletter issued on Wednesday. "But this is politically a very important year, and I don't think anyone wants to end it with a whimper."

Professor Pettis and most other experts say China will ensure long-term growth only if it restructures its economy from one based on exports and big building projects to one based more on consumer spending. The current economic scheme actually transfers money from consumers to the state, partly by paying artificially low interest rates on savings deposits and using the money to issue low-cost loans to big state corporations.

"This new spending for the public sector will be able to stop the sliding of the economy, but it won't stage a strong rebound," said Dong Tao, the chief regional analyst at Credit Suisse Group in Hong Kong. "Basically, it's postponing the down cycle in the economy. Ultimately China needs new momentum coming from private investment and structural reforms before it can set the stage for an upturn."


This article originally appeared in The New York Times.


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