In a sweeping 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 communities devastated by an earthquake in southwest China in May.
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 as part of a more “pro-active fiscal policy.”
“Over the past two months, the global financial crisis has been intensifying daily,” the State Council said in its statement. “In expanding investment, we must be fast and heavy-handed.”
The stimulus plan would be enormous for any country, let alone one whose gross domestic product is lower than most other major industrialized countries, at 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.
One prominent American blogger looks with envy at China’s ability to pony up such a staggering sum and laments America’s inability to fill its own coffers to handle emergencies like this and mostly blames Bush, which isn’t that simplistic considering we were in the black when he took office.
During boom times, China amassed budget surpluses and built up reserves. Now, during a downturn, they’re able to respond with a huge spending initiative at a time when (a) such spending is needed to keep the economy going, and (b) the downturn makes it cheaper than it would otherwise be to complete such projects….Bush took the situation and decided on a combination of irresponsible tax cuts for the Americans who needed them least, an enormously expensive new war whose massive costs involved little if any productive investment for the future, and homeland security spending much of which (like complicated-yet-pointless enhanced airport security) mostly serves as a minor drag on economic activity.
Please note this isn’t to blame only Bush for the financial collapse itself – only for bankrupting the Treasury before the crisis even hit and making a China-like solution far more difficult.
On the other side of the coin, a prominent Chinese blogger who blogs in Chinese sent me his thoughts on China’s stimulus package via email. A fascinating perspective:
I do NOT think those infrastructure investment from Chinese govnerment is the solution to the coming Great Depression. The reason is very simple: if common Chinese people still are reluctant to make consumption instead of save money in the future, every policy stimulus is useless. The only effective way to fight the crisis is to make the poor have more money to spend, but this is the last thing Chinese government will do.
Actually, I hope the crisis will bring us a revolution.
Well. That sure opens up a barrel of questions.
As I said in my earlier post, if this crisis really hits China as hard as some of my readers believe, and if the government handles the stimulus package as dreadfully as it’s handled some other crises, revolution, however unlikely, is not inconceivable. The consensus in the earlier thread was that revolution was not in the cards, as the CCP has already demonstrated its willingness to send in the tanks.
I can’t go quite as far as my fellow blogger and hope for revolution. I hope for more money and opportunity to reach the huddled masses without a revolution that could leave everybody worse off. (If someone could answer the question of who would fill the power vacuum I might be persuaded to hope for it.) Maybe the realization that revoltuon is even possible will shake the Party into a realization that two vastly separated nations, Rich China and Poor China, is not a sustainable model, and that it’s time for some serious, intelligent wealth-spreading.
Pass the popcorn and watch the global drama unfold.
Update: I am happy to see that my fellow blogger has put up his own post in Chinese about our email conversation. You can see it here. I truly admire his courage, not to mention his intelligence.
Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.