Enough Said


News reports are filled today with the announcement of China’s massive 4.0 trillion yuan ($586 billion) economic stimulus plan, so there’s no need to repeat the basic facts here. Because much of this money would have been spent anyway as part of the country’s 11th Five Year Plan and to rebuild those parts of the country devastated by natural disasters earlier this year, the announcement of the stimulus plan on Sunday was obviously intended to shore up consumer confidence in China that has been badly shaken by a more than 70 percent decline in stock market prices; a falling property market; and news of widespread failures and government bailouts around the world. The Chinese are like consumers everywhere. When the news is bad, they tend to close their wallets.


In addition to government spending, China is counting on increased consumer spending to counteract the expected falloff in export growth in 2009 as the global economy suffers the aftermath of the financial crisis. China needs its consumers to help take up the slack, but negative signs as to the mood of the consumer today are everywhere in China. As a result, business activity across all sectors is falling off dramatically in November and December. By announcing an aggressive stimulus package, the government is hoping to restore consumer confidence quickly The Shanghai Index responded with an immediate 5 percent increase in prices on Monday morning.


In reviewing the foreign media coverage of the announcement, I did not see many summaries of where the money will actually be spent. As a benefit to MTD readers and courtesy of Xinhua,

here are the targeted ten areas for spending:


·         Housing: Building more affordable and low-rent housing and speeding the clearing of slums. A pilot program to rebuild rural housing will expand. Nomads will be encouraged to settle down.


·         Rural infrastructure: Speeding up rural infrastructure construction. Roads and power grids in the countryside will be improved, and efforts will be stepped up to spread the use of methane and to ensure drinking water safety. This part of the plan also involves expediting the North-South water diversion project. Risky reservoirs will be reinforced. Water conservation in large-scale irrigation areas will be strengthened. Poverty relief efforts will be increased.


·         Transportation: Accelerating the expansion of the transport network. That includes more dedicated passenger rail links and coal routes. Trunk railways will be extended and more airports will be built in western areas. Urban power grids will be upgraded.


·         Health and education: Beefing up the health and medical service by improving the grass roots medical system. Accelerating the development of the cultural and education sectors and junior high school construction in rural western and central areas. More special education and cultural facilities.


·          Environment: Improving environmental protection by enhancing the construction of sewage and rubbish treatment facilities and preventing water pollution in key areas. Accelerating green belt and natural forest planting programs. Increasing support for energy conservation and pollution-control projects.


·         Industry: Enhancing innovation and industrial restructuring and supporting the development of the high-tech and service industries.


·         Disaster rebuilding: Speeding reconstruction in the areas hit by the May 12 earthquake.


·          Incomes: Raising average incomes in rural and urban areas. Raising next year’s minimum grain purchase and farm subsidies. Increasing subsidies for low-income urban residents. Increasing pension funds for enterprise employees and allowances for those receiving special services.


·         Taxes: Extending reforms in value-added tax rules to all industries, which could cut the tax corporate burden by 120 billion yuan (about 17.6 billion U.S. dollars). Technological upgrading will be encouraged.


·          Finance: Enhancing financial support to maintain economic growth. Removing loan quotas on commercial lenders. Appropriately increasing bank credit for priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.


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