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Timely fiscal expansion

(China Daily)
Updated: 2008-11-11 14:19

The huge fiscal stimulus plan that the Chinese government has just approved is much needed at home and abroad.

It fully demonstrated the Chinese government's confidence and resolution to pursue fast and sound economic growth by further tapping into the great potential of the domestic market.

China announced over the weekend 4 trillion yuan ($586 billion) of investment on infrastructure and social welfare over the next two years.

This timely stimulus package, equivalent to almost a fifth of the country's gross domestic product last year, will be sufficiently large to boost domestic demand and thus cushion the economy against ebbing exports.

As the global growth prospect becomes increasingly dimmer, enough evidence is emerging to show that China's economy is cooling much more quickly than was initially expected.

The Chinese economy grew only 9 percent in the third quarter, the slowest pace in five years. That was already a warning for the country which needs to maintain about 8-percent gross domestic product growth to absorb the 10 million new urban workers who will enter the labor force every year between now and 2010.

But since the global financial crisis has been intensifying daily over the past two months, China's economic slowdown has accelerated in recent weeks, giving rise to the pessimistic view that the country's growth could fall to as low as 6 percent next year without a substantial fiscal stimulus.

Now, the Chinese government has taken fast and massive action to tackle the economic slump. Such positive action will help overcome growing gloominess among Chinese companies and consumers. And the big jump of Chinese shares yesterday clearly represents a vote of confidence among investors.

As the world's fourth largest economy and a major growth engine for the world economy, China's fast and sound growth will also give a significant boost to international efforts to address the global economic downturn.

It is now almost a consensus that boosting spending at home is the best way China can help avert a prolonged world recession.

With a deep national coffer that many cash-strapped governments can only envy, the Chinese authorities are surely well positioned to crank up public spending.

Yet, the need to make full use of the room for maneuver on fiscal policy does not mean that the country is to spend its way out of the economic slowdown.

Good fiscal stimuli should be timely, sufficient, and more important, well targeted to facilitate the country's long-term development.

It is particularly commendable that much of the new stimulus package will be spent on low-rent housing and rural infrastructure both of which are badly needed to help the poor.

Improved living standards for all will be a crucial condition for China to develop domestic consumption into a leading growth engine in the coming decades.