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Chinese economic stimulus program

April 10, 2024

The 2008–09 Chinese economic stimulus plan (simplified Chinese: 扩大内需十项措施; traditional Chinese: 擴大內需十項措施; pinyin: Kuòdà Nèixū Shíxiàng Cuòshī) was a RMB¥ 4 trillion (US$586 billion) stimulus package aiming to minimize the impact of the financial crisis of 2007–2008 on the Chinese economy.[2][3] It was announced by the State Council of the People's Republic of China on 9 November 2008. The economic stimulus plan was seen as a success: While China's economic growth fell to almost 6% by the end of 2008, it had recovered to over 10% by in mid-2009. Critics of China's stimulus package have blamed it for causing a surge in Chinese debt since 2009, particularly among local governments and state-owned enterprises.[4][5][6] The World Bank subsequently went on to recommend similar public works spending campaigns to western governments experiencing the effects of the financial crisis, but the US and EU instead decided to pursue long-term policies of quantitative easing.

The stimulus includes plans to rebuild areas damaged by the 2008 Sichuan earthquake.[1]

Announcement edit

A statement on the government's website said the State Council of the People's Republic of China had approved a plan to invest 4 trillion yuan in infrastructure and social welfare by the end of 2010.[3][7] This stimulus, equivalent to US$586 billion, represented a pledge comparable to that subsequently announced by the United States, but which came from an economy only one third the size.[8] The stimulus package will be invested in key areas such as housing, rural infrastructure, transportation, health and education, environment, industry, disaster rebuilding, income-building, tax cuts, and finance.[9]

China's export driven economy started to feel the impact of the economic slowdown in the United States and Europe, and the government had already cut key interest rates three times in less than two months in a bid to spur economic expansion.

The stimulus package was welcomed by world leaders and analysts as larger than expected and a sign that by boosting its own economy, China is helping to stabilize the world economy. World Bank President Robert Zoellick declared that he was 'delighted' and believed that China was 'well positioned given its current account surplus and budget position to have fiscal expansion.'[8] News of the announcement of the stimulus package sent markets up across the world.[10]

Details edit

2008 edit

On the 15 of November, 2008, it was revealed that the central government would only provide 1.2 trillion yuan of funds.[11] The rest of the funds will be reallocated from the budget of provincial and local governments.

Chinese banking officials were reportedly considering establishing a fund worth between 600 billion and 800 billion yuan to purchase domestic shares listed on the Shanghai Stock Exchange, particularly those in the Shanghai Composite, in the event the Shanghai Index fell to 1,500 points.[12]

2009 edit

On March 6, 2009, China's National Development and Reform Commission' announced a revision of the stimulus and published a breakdown of how the funds would be distributed.

Public infrastructure development took up the biggest portion – 1.5 trillion yuan, or nearly 38% of the total package. The projects lined up include railway, road, irrigation, and airport construction.

The second largest allocation – one trillion yuan – went to reconstruction works in regions hit by the 8-magnitude Sichuan earthquake in May 2008; that was followed by funding for social welfare plans, including the construction of low-cost housing, rehabilitation of slums, and other social safety net projects.

Rural development and technology advancement programs shared the same amount of allocation – at 370 billion yuan each. Rural projects in the pipeline included building public amenities, resettling nomads, supporting agriculture works, and providing safe drinking water.

Technology advancement mainly targeted at upgrading the Chinese industrial sector, gearing towards high-end production to move away from the current export-oriented and labor-intensive mode of growth. This was in line with the government's latest blueprint for revitalizing 10 selected industries.

To ensure sustainable development, the Chinese government also allocated some 210 billion yuan, or 5.3% of the stimulus package for promoting energy saving and gas emission cuts, and environmental engineering projects.

Finally, 150 billion yuan was allocated for educational, cultural and family planning purposes.[13]

One year later, these programs seem to have been even more successful than expected, so that on November 4, 2009, the World Bank group enhanced its "prognosis" of the Chinese GDP, by +1.2%, to a value of +8.4%.[14]

2010 edit

China's economic growth was sustained by the economic stimulus and in addition, assisted neighboring countries with the economic recovery in 2010.[15] Chinese real economic growth was around 10 percent even as European and North American economies were slowing.[16] The stimulus provided funds for infrastructure projects and housing developments. Some were used to assist local governments in lending to state-owned enterprises for housing and infrastructure projects.[16] This focus on construction expanded employment in not only construction, but also manufacturing, steel, cement and other sectors producing inputs to the construction sector.[16] Some analysts suggested that the stimulus program could generate inflation and a property bubble.[16]

Due to the success of the economic stimulus plan, the central government tightened financial regulation in order to restrict lending amid fears of a property bubble.[17]

2011 edit

In 2011, it was revealed that as much as 20% of the loans under the program may be written off.[18]

2012 edit

In September 2012, the Chinese government through the National Development and Reform Commission gave approval for 60 infrastructure projects totalling more than 1 trillion yuan ($157 billion).[19]

Responses edit

The stimulus package has been criticized for causing a surge in Chinese debt after 2009. In 2011, Minxin Pei criticized Beijing for "resorting to massive bank lending to local governments, which then went on an infrastructure spending binge that's certain to haunt the country for years to come".[5][6] A 2014 study by global think-tank Carnegie Endowment for International Peace concluded that "[China]'s debt problems are rooted in the government's November 2008 announcement of a 4 trillion yuan ($586 billion) stimulus package to counteract the effects of the global financial crisis."[4]

The World Bank subsequently went on to recommend[citation needed] similar public works spending campaigns to western governments experiencing the effects of the financial crisis, but the US and EU instead decided to pursue long-term policies of quantitative easing (the buying of trillions of dollars worth of government bonds or other financial assets in order to stimulate the economy and increase liquidity).

See also edit

References edit

  1. ^ China plans $586 billion economic stimulus from the International Herald Tribune
  2. ^ Bradsher, Keith (2008-09-04). "China's Central Bank Is Short of Capital". The New York Times. Retrieved 2008-10-01.
  3. ^ a b Barboza, David (2008-11-10). "China unveils sweeping plan for economy". International Herald Tribune. Retrieved 2013-11-22.
  4. ^ a b Huang, Yukon. "China's Debt Dilemma: Deleveraging While Generating Growth". Carnegie Endowment for International Peace.
  5. ^ a b Pei, Minxin. "China's Ticking Debt Bomb". The Diplomat.
  6. ^ a b Pei, Minxin. "Are Chinese Banks Hiding "The Mother of All Debt Bombs"?". The Diplomat.
  7. ^ Paul Maidment. . Forbes.com. Archived from the original on 2008-11-12. Retrieved 2008-11-11.
  8. ^ a b Can China Manage Its Economy?
  9. ^ . News.xinhuanet.com. Archived from the original on November 13, 2008. Retrieved 2008-11-14.
  10. ^ Lee, Don (2008-11-10). "China's $586-billion stimulus plan could boost world economy". Los Angeles Times. Retrieved 2008-11-14.
  11. ^ "Beijing offers just quarter of stimulus funds". The Financial Times. 2008-11-16. Retrieved 2008-11-16.
  12. ^ "Another China Bailout? 800 Billion Yuan Stabilization Fund Being Reviewed". www.eeo.com.cn. 2008-11-12. Retrieved 2008-11-16.
  13. ^ "www.eeo.com.cn/ens/finance_investment/2009/03/07/131626.shtml". www.eeo.com.cn. 2009-03-07. from the original on 2009-04-13. Retrieved 2009-03-10.
  14. ^ "Prognosis" of the 'world bank group' for the 2009 chinese GDP from Nov. 4, 2009, [1], resulting in a plus of +8.4 %, instead of the former value of +7.6 %.
  15. ^ By MICHAEL S. ARNOLD (AUGUST 31, 2010), China's Rebound Eases Slump Fears, url=https://www.wsj.com/articles/SB10001424052748703882304575464842437541292?mod=googlenews_wsj
  16. ^ a b c d Dalrnia, Shikha; Randazzo, Anthony (21 August 2010). "China's Looming Real-Estate Bubble". Wall Street Journal. p. A9. ProQuest 2651468754.
  17. ^ Batson, Andrew (27 August 2010). "China's Banks Face Hangover as Lending Slows". Wall Street Journal. p. C2. ProQuest 2648891280.
  18. ^ Schoen, John W. "China may be next victim of a debt crisis." MSNBC, 1 July 2011.
  19. ^ "WRAPUP 3-China approves $157-billion infrastructure spending". Reuters. 2012-09-07.

External links edit

 
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April 10, 2024
chinese, economic, stimulus, program, 2008, chinese, economic, stimulus, plan, simplified, chinese, 扩大内需十项措施, traditional, chinese, 擴大內需十項措施, pinyin, kuòdà, nèixū, shíxiàng, cuòshī, trillion, billion, stimulus, package, aiming, minimize, impact, financial, cri. The 2008 09 Chinese economic stimulus plan simplified Chinese 扩大内需十项措施 traditional Chinese 擴大內需十項措施 pinyin Kuoda Neixu Shixiang Cuoshi was a RMB 4 trillion US 586 billion stimulus package aiming to minimize the impact of the financial crisis of 2007 2008 on the Chinese economy 2 3 It was announced by the State Council of the People s Republic of China on 9 November 2008 The economic stimulus plan was seen as a success While China s economic growth fell to almost 6 by the end of 2008 it had recovered to over 10 by in mid 2009 Critics of China s stimulus package have blamed it for causing a surge in Chinese debt since 2009 particularly among local governments and state owned enterprises 4 5 6 The World Bank subsequently went on to recommend similar public works spending campaigns to western governments experiencing the effects of the financial crisis but the US and EU instead decided to pursue long term policies of quantitative easing The stimulus includes plans to rebuild areas damaged by the 2008 Sichuan earthquake 1 Contents 1 Announcement 2 Details 2 1 2008 2 2 2009 2 3 2010 2 4 2011 2 5 2012 3 Responses 4 See also 5 References 6 External linksAnnouncement editA statement on the government s website said the State Council of the People s Republic of China had approved a plan to invest 4 trillion yuan in infrastructure and social welfare by the end of 2010 3 7 This stimulus equivalent to US 586 billion represented a pledge comparable to that subsequently announced by the United States but which came from an economy only one third the size 8 The stimulus package will be invested in key areas such as housing rural infrastructure transportation health and education environment industry disaster rebuilding income building tax cuts and finance 9 China s export driven economy started to feel the impact of the economic slowdown in the United States and Europe and the government had already cut key interest rates three times in less than two months in a bid to spur economic expansion The stimulus package was welcomed by world leaders and analysts as larger than expected and a sign that by boosting its own economy China is helping to stabilize the world economy World Bank President Robert Zoellick declared that he was delighted and believed that China was well positioned given its current account surplus and budget position to have fiscal expansion 8 News of the announcement of the stimulus package sent markets up across the world 10 Details edit2008 edit On the 15 of November 2008 it was revealed that the central government would only provide 1 2 trillion yuan of funds 11 The rest of the funds will be reallocated from the budget of provincial and local governments Chinese banking officials were reportedly considering establishing a fund worth between 600 billion and 800 billion yuan to purchase domestic shares listed on the Shanghai Stock Exchange particularly those in the Shanghai Composite in the event the Shanghai Index fell to 1 500 points 12 2009 edit On March 6 2009 China s National Development and Reform Commission announced a revision of the stimulus and published a breakdown of how the funds would be distributed Public infrastructure development took up the biggest portion 1 5 trillion yuan or nearly 38 of the total package The projects lined up include railway road irrigation and airport construction The second largest allocation one trillion yuan went to reconstruction works in regions hit by the 8 magnitude Sichuan earthquake in May 2008 that was followed by funding for social welfare plans including the construction of low cost housing rehabilitation of slums and other social safety net projects Rural development and technology advancement programs shared the same amount of allocation at 370 billion yuan each Rural projects in the pipeline included building public amenities resettling nomads supporting agriculture works and providing safe drinking water Technology advancement mainly targeted at upgrading the Chinese industrial sector gearing towards high end production to move away from the current export oriented and labor intensive mode of growth This was in line with the government s latest blueprint for revitalizing 10 selected industries To ensure sustainable development the Chinese government also allocated some 210 billion yuan or 5 3 of the stimulus package for promoting energy saving and gas emission cuts and environmental engineering projects Finally 150 billion yuan was allocated for educational cultural and family planning purposes 13 One year later these programs seem to have been even more successful than expected so that on November 4 2009 the World Bank group enhanced its prognosis of the Chinese GDP by 1 2 to a value of 8 4 14 2010 edit China s economic growth was sustained by the economic stimulus and in addition assisted neighboring countries with the economic recovery in 2010 15 Chinese real economic growth was around 10 percent even as European and North American economies were slowing 16 The stimulus provided funds for infrastructure projects and housing developments Some were used to assist local governments in lending to state owned enterprises for housing and infrastructure projects 16 This focus on construction expanded employment in not only construction but also manufacturing steel cement and other sectors producing inputs to the construction sector 16 Some analysts suggested that the stimulus program could generate inflation and a property bubble 16 Due to the success of the economic stimulus plan the central government tightened financial regulation in order to restrict lending amid fears of a property bubble 17 2011 edit In 2011 it was revealed that as much as 20 of the loans under the program may be written off 18 2012 edit In September 2012 the Chinese government through the National Development and Reform Commission gave approval for 60 infrastructure projects totalling more than 1 trillion yuan 157 billion 19 Responses editThe stimulus package has been criticized for causing a surge in Chinese debt after 2009 In 2011 Minxin Pei criticized Beijing for resorting to massive bank lending to local governments which then went on an infrastructure spending binge that s certain to haunt the country for years to come 5 6 A 2014 study by global think tank Carnegie Endowment for International Peace concluded that China s debt problems are rooted in the government s November 2008 announcement of a 4 trillion yuan 586 billion stimulus package to counteract the effects of the global financial crisis 4 The World Bank subsequently went on to recommend citation needed similar public works spending campaigns to western governments experiencing the effects of the financial crisis but the US and EU instead decided to pursue long term policies of quantitative easing the buying of trillions of dollars worth of government bonds or other financial assets in order to stimulate the economy and increase liquidity See also edit nbsp Business and economics portal nbsp Economics portal2000s energy crisis 2007 2008 world food price crisis 2008 2012 Icelandic financial crisis 2008 2009 Russian financial crisis Bear Stearns subprime mortgage hedge fund crisis Collateralized debt obligation Credit derivative Derivative finance Financial crisis of 2007 2010 Global financial crisis of 2008 2009 Late 2000s recession List of entities involved in 2007 2008 financial crises Margin call Mark to market accounting Savings and loan crisis Statistical Arbitrage Events of Summer 2007 Subprime crisis impact timeline Subprime mortgage crisis United States housing market correctionReferences edit China plans 586 billion economic stimulus from the International Herald Tribune Bradsher Keith 2008 09 04 China s Central Bank Is Short of Capital The New York Times Retrieved 2008 10 01 a b Barboza David 2008 11 10 China unveils sweeping plan for economy International Herald Tribune Retrieved 2013 11 22 a b Huang Yukon China s Debt Dilemma Deleveraging While Generating Growth Carnegie Endowment for International Peace a b Pei Minxin China s Ticking Debt Bomb The Diplomat a b Pei Minxin Are Chinese Banks Hiding The Mother of All Debt Bombs The Diplomat Paul Maidment China Announces Massive Stimulus Package Forbes com Archived from the original on 2008 11 12 Retrieved 2008 11 11 a b Can China Manage Its Economy China plans 10 major steps to spark growth as fiscal monetary policies ease News xinhuanet com Archived from the original on November 13 2008 Retrieved 2008 11 14 Lee Don 2008 11 10 China s 586 billion stimulus plan could boost world economy Los Angeles Times Retrieved 2008 11 14 Beijing offers just quarter of stimulus funds The Financial Times 2008 11 16 Retrieved 2008 11 16 Another China Bailout 800 Billion Yuan Stabilization Fund Being Reviewed www eeo com cn 2008 11 12 Retrieved 2008 11 16 www eeo com cn ens finance investment 2009 03 07 131626 shtml www eeo com cn 2009 03 07 Archived from the original on 2009 04 13 Retrieved 2009 03 10 Prognosis of the world bank group for the 2009 chinese GDP from Nov 4 2009 1 resulting in a plus of 8 4 instead of the former value of 7 6 By MICHAEL S ARNOLD AUGUST 31 2010 China s Rebound Eases Slump Fears url https www wsj com articles SB10001424052748703882304575464842437541292 mod googlenews wsj a b c d Dalrnia Shikha Randazzo Anthony 21 August 2010 China s Looming Real Estate Bubble Wall Street Journal p A9 ProQuest 2651468754 Batson Andrew 27 August 2010 China s Banks Face Hangover as Lending Slows Wall Street Journal p C2 ProQuest 2648891280 Schoen John W China may be next victim of a debt crisis MSNBC 1 July 2011 WRAPUP 3 China approves 157 billion infrastructure spending Reuters 2012 09 07 External links edit nbsp Wikinews has related news Canadian dollar reaches parity with US dollarFears grow about U S dollar stabilityWorldwide markets fall precipitously FACTBOX China s recent measures to spur growth timeline Retrieved from https en wikipedia org w index php title Chinese economic stimulus program amp oldid 1205985284, wikipedia, wiki, book, books, library,

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