How to make the cake of $586 billion in China?

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By Li Hongmei ( chinadaily.com.cn)
Updated: 2008-11-13 17:03

The State Council, China’s cabinet, recently hammered out the most courageous economic stimulus package, involving a huge investment of up to 4 trillion yuan, or $586 billion by the end of 2010, in a bid to boost the waning domestic demands and halt the slowing economic growth form slipping further to its ebb.

The package, with 10 concrete measures highlighted, is not only intended to ensure a steady economic growth, but also weigh in preference to investing in the improvement of people’s living standards, like solidifying Chinese people’s social security guarantees. But the problems that could pop up with the emergence of the ambitious fiscal spending plan may include: How to make the immense cake of 4 trillion yuan? And make it efficiently to both arrest the sagging economy from worsening, and improve the people’s livelihood?

Some analysts say that the 4-trillion-yuan package will come from the three sources, namely, coffer revenues of the central and provincial governments, and contributions from the society at large. The Finance Ministry disclosed that the central government’s input in 2007 had already amounted to 2.78 trillion yuan, up 35.6 percent over the previous year. Investments from the central government, dubbed as the most reliable financial supplies, have long acted as a strong impetus to China’s robust economic growth for the past three decades when the country adopted reform and opening-up policies.

But what is left unsettled in terms of the package is the local contributions, as a great many local authorities survive and thrive on the fiscal revenues from land. The gloom of the real estate market has thus far delivered a harsh blow to the coffer revenues of the local governments.

Some underdeveloped regions, with the already faltering local economy, have been troubled by a sea of heavy debts, and could hardly contribute anything to the national stimulus plan, which is being meted out by the central government in Beijing.

The rumor that the local authorities have submitted to Beijing a bill asking for the permission to issue debt bonds have been straightened out by the information recently leaked from the Ministry of Finance, saying it is unlikely for local governments to issue bonds in the foreseeable future, as the thing still defies the likelihood to operate.

It seems that the financing short cut for local governments is still inaccessible in a short time, which also exacerbates the strain on local contributions and inputs. On the other hand, social contributions will also depend on whether the government can stage more active and effective fiscal and monetary policies.

On top of that, there are two more things that deserve close attention in the implementation of the 4-trillion-yuan stimulus plan -- the replication in construction and investment, and the ‘image projects,’ due to the fact that the economy-boosting measures to be carried out involve the infrastructure constructions, some local governments have been accused of replicating airport constructions in the years gone by, and many others have for all these years placed their top priority on the image-building projects, rather than the projects aimed to improve the sustenance of the local people.

In the light of social conditions, the linchpin to guarantee the smooth implementation of the stimulus package would lie in the efforts made by the local governments, such as broadening their channels for financing, coordinating with the central government and the entire society in pitching in the contributions, and trying the utmost to cut administrative costs and conserve social resources.

The specter of job cuts induced by the global financial crisis has been hovering over both the developed and emerging economies, and in the past weeks, the low-skilled manufacturing industries located in the country’s booming business hubs along the Pearl River and the Yangtze River Deltas have shut down in droves, throwing millions of migrant workers out of job. The investment of 4 trillion yuan, scheduled to complete by the end of 2010 and aimed to better off people’s livelihood, also needs to consider how to help the jobless put food on the table at this agonizing moment.