China's 4 trillion yuan stimulus to boost economy, domestic demand 2008-11-09 19:35:15   Print

Special Report: Global Financial Crisis

Backgrounder: A timeline of China's recent economic-stimulus measures

A timeline of China's macro-economic policy shifts over 30 years

    BEIJING, Nov. 9 (Xinhua) -- China said on Sunday it will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.

    This is a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.

    A stimulus package estimated at 4 trillion yuan (about 570 billion U.S. dollars) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake.

    The policies include a comprehensive reform in value-added taxes, which would cut industry costs by 120 billion yuan.

    Commercial banks' credit ceilings will be abolished to channel more lending to priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.

    The decision was announced on Sunday by the State Council, or cabinet, after Premier Wen Jiabao presided over an executive meeting on Wednesday.

    The meeting decided that credit expansion must be "rational" and "target spheres that would promote and consolidate the expansion of consumer credit."

    With 100 billion yuan from current-year central government funds and another 20 billion yuan brought forward from next year's budget for post-disaster reconstruction, the fourth quarter is expected to see a total investment of 400 billion yuan across the nation.

    The massive spending plan was expected to play a remarkable role in sustaining growth as 4 trillion yuan investment is an equivalent of one third of the nation's total fixed asset investment last year, according to Zhang Liqun, researcher with the Development Research Center of the State Council.

    "With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro-economic policies to deal with the complex and changing situation," said the meeting.

    The meeting also announced that China will adopt "active" fiscal and "moderately active" monetary policies and map out more forceful measures to expand domestic demand, speed up the construction of public facilities and improve living standards of the poor to achieve "steady and relative fast" economic growth.

    The active fiscal policy alone would not bear much fruit without the coordination of easing monetary policy. The two should work together to confront the economic complexity of home and abroad, said Yuan Gangming, researcher with the Center for China in the World Economy of Tsinghua University.

    The policy change comes out in time as the global financial crisis begins to affect China's real economy. The adjustment is more resolute and timely as China draw lessons from the Asian financial crisis in 1998, said director of the Research Institute for Fiscal Science of Ministry of Finance Jia Kang. He noted the easing policy was expected to prevent big ups and downs in the economy.

    He said the value-added tax reduction would encourage enterprises to invest more in the long run.

    The macro-economic policy changes announced on Sunday are one of only a few major shifts during the 30 years since the beginning of reform and opening up in 1978.

    The most recent modification was in December, when the government resorted to a combination of "tight" monetary policy and "prudent" fiscal policy to fight inflation.

    With the monthly consumer price index, the main gauge of inflation, expected to drop further through year-end -- after plunging from a 12-year high of 8.7 percent in February to 4.6 percent in September -- the focal task of macro-economic control has shifted from beating inflation to sustaining economic growth.

    The past three months have seen a series of stimulus policies: interest rate cuts, lower bank reserve requirement ratios, tax changes, higher credit quotas and the injection of central government funds to infrastructure construction.

    The meeting decided that higher investment must be able to facilitate economic restructuring, promote growth potential by channeling investment to where it's most needed and spur private consumption.

    Although the economy has maintained double-digit growth for years, fixed-asset investment and exports have dwarfed consumption as the two pillars of expansion. With global recession clearly in view, China must sustain itself by exploiting the domestic market to offset weaker demand abroad.

    The meeting identified the ongoing world economic adjustment as "a new opportunity" for China to speed industrial restructuring, introduce advanced technologies and talents from abroad.

    Despite challenges, China has a great potential to develop its domestic demand and a solid financial system, the meeting noted.

    "As long as we take the right measures in a resolute and timely way to grasp the chance and rise to the challenges, we will surely secure steady and relative fast economic growth," the meeting noted.

China plans 10 major steps to spark growth as fiscal, monetary policies ease

    BEIJING, Nov. 9 (Xinhua) -- China will take 10 major steps to stimulate domestic consumption and growth as it turns to an "active" fiscal policy and "moderately easy" monetary policy, an executive meeting of the State Council said on Sunday. Full story

China's VAT reform to shed corporate tax burden by 120 bln yuan

    BEIJING, Nov. 9 (Xinhua)-- China announced on Sunday it would spread a reform of its value-added tax regime to all industries nationwide, which could cut the tax burden on enterprises by 120 billion yuan (about 17.6 billion U.S. dollars).  Full story

China to stabilize global financial markets by maintaining growth 

    SAO PAULO, Nov. 8 (Xinhua) -- China will help stabilize international financial markets by maintaining its economic growth and expanding domestic demand, Zhou Xiaochuan, governor of China's central bank, said here Saturday.

    The People's Bank of China is closely following the situation in international financial markets to make its policies on further readjustment of interest rate, he said. Full story

China tries to revive economy despite daunting challenges 

    BEIJING, Nov. 9 (Xinhua) -- Although China doesn't celebrate Christmas, Lou Qijun is one of the many Chinese toy and gift manufacturers who anticipates a visit from Santa Claus every year in the form of seasonal orders from the Europe and North America.

    Not so this year, says Lou, chairman of Yiwu Qiling Toys Co. Ltd., a leading toy producer in east China's Yiwu City, Zhejiang Province, after returning from the Canton Fair, the country's biggest trade show which concluded on Thursday. Full story

China adopts flexible monetary policy to boost economy, cope with crisis

    BEIJING, Oct. 31 (Xinhua) -- China's decision to cut interest rates on Thursday is part of its flexible monetary policy to cope with the world financial crisis and boost domestic economy, a central bank spokesman said on Friday.

    Li Chao, spokesman of the People's Bank of China (PBOC) explained the government's cut in interest rates for the second time in one month. Full story

China should pursue a stable monetary policy, says former banker

    BEIJING, Nov. 3 (Xinhua) -- China should pursue a stable monetary policy in the face of risks from both inflation and falling prices, as it is not urgent to cut interest rates, the China Securities Journal quoted a former banker as saying on Monday.

    Wu Xiaoling, former deputy governor of the People's Bank of China, the country's central bank, said over the weekend that fiscal policies and other policies were of more importance than monetary policies to maintain the stability of the country's economy amid the current complicated situation both at home and abroad. Full story

NBS chief: China's economy in good shape despite global financial turmoil

    BEIJING, Nov. 2 (Xinhua) -- China's economy is in good shape despite the changing economic environment, and it will maintain stable and relatively fast growth, National Bureau of Statistics (NBS) chief Ma Jiantang told Xinhua on Sunday.

    "The fundamentals of China's economy remain unchanged despite the changing world economic environment," the new NBS director said. "We should be confident about the country's economic outlook." Full story

Rating agency report: China's GDP to slow to 9.4% in 2008 

    BEIJING, Nov. 2 (Xinhua) -- China's gross domestic product (GDP) growth is expected to slow to 9.4 percent in 2008 from last year's 11.4 percent as the shrinking exports will cool the world's fourth largest economy, according to a Chinese credit rating agency report on Sunday.

    The fundamentals of the economy are sound, but falling export orders would take a toll on the national economy in the short term, and domestic consumption needed time to play a bigger role, said the report released by the China Chengxin International Credit Rating Co. (CCXI), a joint venture of China's first rating agency China Chengxin Credit Management Co. Ltd. and U.S.-based Moody's Corporation. Full story

Global financial crisis spills over China's labor market

    BEIJING, Nov. 1 (Xinhua) -- In the space of a year, Yang Chanjuan's career plan has changed direction. A soon-to-graduate college student in economics, Yang is feeling her fortunes being buffeted by the financial crisis.

    Yang was recently told by her schoolmates already working in the financial sector that their companies would cut staff, or there would no bonus this year. Amid the turmoil and full of uncertainty, a job in banking or securities company was no longer desirable to her. As a result, she decided to apply for a government job. Full story

Editor: Yao
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