China to initiate $586b. stimulus plan

China's export-driven economy is starting to feel the impact of the economic slowdown in the United States and Europe.

November 10, 2008 11:18
2 minute read.


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China announced a $586 billion stimulus package on Sunday, in its biggest move to stop the global financial crisis from hitting the world's fourth-largest economy. A statement on the government's Web site said China's cabinet had approved a plan to invest 4 trillion yuan ($586b.) in infrastructure and social welfare by the end of 2010. Some of the money will come from the private sector. The statement did not say how much of the spending is for new projects and how much is for ventures already in the pipeline that will be speeded up. China's export-driven economy is starting to feel the impact of the economic slowdown in the United States and Europe, and the government has already cut key interest rates three times in less than two months in a bid to spur economic expansion. Economic growth slowed to a 9 percent annual rate in the third quarter, the lowest level in five years and a sharp decline from last year's 11.9%. That is considered dangerously slow for a government that needs to create jobs for millions of new workers who enter the economy every year and to satisfy a public that has come to expect steadily rising incomes. Exports have been growing at an annual rate of more than 20% but analysts expect that may fall as low as zero in coming months as global demand weakens. The statement said the cabinet, at a meeting chaired by Premier Wen Jiabao, had "decided to adopt active fiscal policy and moderately easy monetary policies." It did not give details. The statement said the spending would focus on 10 areas. They included picking up the pace of spending on low-cost housing - an urgent need in many parts of the country - as well as increased spending on rural infrastructure. Money will also be poured into new railways, roads and airports. Spending on health and education will be increased, as well as on environmental protection and hi-tech. Spending on rebuilding disaster areas, such as Sichuan province where 70,000 people were killed and millions were left homeless by a massive earthquake in May, will also be sped up. That includes 20b. yuan ($2.93b.) planned for next year that will be moved up to the fourth quarter of this year. The statement, without giving details, said rural and urban incomes would be increased. Credit limits for commercial banks will also be removed to channel more lending to priority projects and rural development, it said. As well, reform of the value-added tax system will cut taxes by 120b. yuan ($17.5b.) for enterprises, the statement said. The plan was announced before President Hu Jintao goes to Washington to push Western leaders to give poorer countries a bigger role in global financial institutions at a summit of the Group of 20 major economies on the financial crisis on Saturday.

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