English | 中文版 |  Русский

Breaking News:

Source: www.asiaecon.org |

CHINA RELEASES THE SECOND PART OF ITS STIMULUS PACKAGE


China has revealed plans to release the second part of its $586 billion stimulus package announced in November. The $19 billion stimulus will be released at the end of the month and  is aimed at boosting economic activity in order to help the country achieve its goal of 8% growth in 2009 while it tries to cushion the impacts of the global economic crisis.




China has revealed plans to release the second part of its $586 billion stimulus package announced in November. The $19 billion stimulus will be released at the end of the month and  is aimed at boosting economic activity in order to help the country achieve its goal of 8% growth in 2009 while it tries to cushion the impacts of the global economic crisis.

China’s stimulus package was  announced in November 2008,  and aimed to bolster economic growth and reconstruction following the global economic crisis and the impacts of the massive Sichuan earthquake earlier in the year. The overall package focused on infrastructure investments, social welfare programs and tax cuts for the next two years. China’s main goal is to boost the economy by increasing domestic consumption, which the government  believes to be the engine of the country’s growth. 

 The first part of the package, an amount totaling $14.6 billion, was released immediately after the package announcement, as the government aimed to aggressively tackle the financial slowdown by boosting consumer spending and stimulating the real economy.

The results of the first part of the stimulus package have already been felt in the country. The loosening of the government’s monetary policy has already allowed an increasing in lending, with lending transactions in December increasing by 723.3 billion yuan from the same period in the previous year.

In addition, the stimulus has allowed for an increase of  agricultural machinery, automobiles and household appliances available in the rural areas.  The government also began to transform the value-added tax, saving Chinese businesses up to $17 billion. Low income people have received spending subsidies, while vulnerable groups have began to receive subsistence allowances and pension supplements. Moreover, the government plans to further invest on housing projects for low income families, rural infrastructure projects, cultural projects, innovations and industrial reconstruction.


Although the details of the second part of the stimulus package have not yet been released, analysts suggest that most of the money will be allocated towards investments in public facilities, with 31.5 billion yuan going towards things such as water, road construction and electricity, particularly in rural areas. Moreover, it is suggested that 28 billion yuan will be spent in further housing projects and 17 billion yuan will go towards education and health sectors. An estimated 15 billion yuan is expected to be spend on economic reconstruction, 11 billion yuan on environmental protection projects and the remaining 27.5 billion yuan allocated towards remaining infrastructure projects.

China experienced an overall growth of 9% in 2008, the slowest annual rate in seven years. Moreover,  growth in the last quarter of 2008 slowed to 6.8% in light of the global financial crisis. With the release of the second part of the stimulus, China’s government is certain that the economy will soon recover and continue to grow in a fast pace by the end of the year. Chinese Premier Wen Jiabao is confident that the country’s economic growth in 2009 will reach 8% even though other foreign organizations such as the IMF have forecast a much lower projected growth of 6.7%.

Wen stated that part of the government’s confidence was spurred due to the fact that “the conditions that have allowed for 30 years of spectacular growth remain unchanged—a well trained relatively low cost labour force and a huge trade balance which allows for the injection of cash when needed.” 

Furthermore, Chinese analysts believe that there still remains huge potentials for domestic growth.  That, along with the timely release of the economic stimulus throughout the year, should help the country rebound strongly in the third or fourth quarter.

However, China’s substantial dependence on exports, currently affected by the slumping global demand, might pose a challenge to the government’s optimistic predictions. Furthermore, as the predicted stimulus package is injected into the economy, imports for raw materials are likely to increase, while the global demand for exports will continue to decrease in light of the economic crisis, all of which would significantly impact the country’s trade balance and consequently, its GDP growth. Moreover, China’s aging population, increasing unemployment rate and problematic health care system, will likely slow private consumption and therefore lower the country’s projected growth.

China contributed to 22% of world growth in 2008, and while it may not yet be in the position to save the world economy, it definitely has proven to have a significant influence on the global market. Whether China will achieve an 8% growth rate in 2009 remains to be seen, but aggressive stimulus packages, if administered correctly, will definitely have an impact on the country’s recovery and consequently on the recovery of the global economy.


Source: asiaecon.org
Please send comments and constructive suggestions to feedback@AsiaEcon.org

Source: www.asiaecon.org |


More Special Articles - Asia Business & Economy Articles