November 10, 2008
China Unveils $586 Billion Economic Stimulus Plan
By DAVID BARBOZA
SHANGHAI — China announced on Sunday a huge economic stimulus package aimed at bolstering its weakening economy and perhaps helping fight the effects of a global economic slowdown.
In a bold move at a time when major projects are being put off around the world, Beijing said it would spend an estimated $586 billion by 2010 on wide array of national infrastructure and social welfare projects, including constructing new railways, subways, airports and rebuilding depressed communities.
The package, announced by the State Council Sunday evening, is the largest economic stimulus effort ever undertaken by the Chinese government and would amount to about 7 percent of the country’s gross domestic product during each of the next two years.
Beijing also said it was loosening credit and encouraging lending and that it needed to have a more “pro-active fiscal policy” in order to strengthen its economy.
The stimulus plan would be enormous for any country, let alone one whose gross domestic product is lower than most other major industrialized countries, estimated to be around $3.5 trillion this year. Earlier this year, the United States Congress passed a $700 billion bailout package in a country with an economy whose size is close to $14 trillion.
The announcement came less than a week before President Hu Jintao of China is scheduled to travel to Washington for a global economic summit meeting that will be attended by world leaders and hosted by President Bush. China is likely to be pressed by world leaders to do its part to help strengthen the global economy in the face of what some economists say is the worst financial crisis since the Great Depression.
But Beijing has already indicated that it intends to help stabilize the global economy by helping keep the world’s fastest-growing economy on track. Over the weekend, the head of China’s Central Bank, Zhou Xiaochuan, said at a meeting of finance ministers in Brazil that China can help stabilize international markets by encouraging consumption at home.
And on Saturday, President Hu spoke by telephone with President-elect Barack Obama about a range of issues, including the global financial crisis and how the two countries might cooperate to help resolve economic problems, according to China’s state-run news media.
At home, Beijing is struggling to cope with a rapidly slowing economy. After five years of growth in excess of 10 percent, China’s economy is weakening because of slowing export and investment growth, declining consumption and severely depressed stock and property markets.
Factory closures in southern China, which is often dubbed the factory floor of the world, have led to mass layoffs and even sporadic protests by workers who complained owners disappeared without paying them their wages.
With many economists in China now projecting that growth in the fourth quarter of this year could be as low as 5.8 percent here, and worries that China’s economic miracle could be walloped by the global financial crisis, the government is moving aggressively.
Analysts were expecting China to announce a big stimulus package but were surprised at the size of it.
“That is much more aggressive than I expected,” said Frank X. Gong, a Hong Kong based economist at J.P. Morgan. “That’s a lot of money to spend. They’ll building subways, railroads, bridges, roads. The key is to stimulate end demand.”
Mr. Gong said that after the Asian financial crisis in 1997, Beijing undertook a similar, but much smaller, stimulus package, earmarking huge sums to build the country’s massive highway and toll road system, which helped keep the economy growing in 1998 and 1999.