By Yi Xianrong

As the international financial meltdown looms large and China faces an increasing possibility of an economic downturn, the State Council, the Cabinet, last week made public an array of measures to stimulate domestic demand and concrete policies on their implementation.

The move symbolizes a new round of macro-control initiatives to be launched by the central government. To reduce the impact of the seismic international financial crisis on the Chinese economy to a minimum, the central government has to bring to an end its previous macroeconomic tool in pursuit of a sustained economic growth.

At the State Council meeting on Nov 5, Premier Wen Jiabao offered a 4 trillion yuan (US$586 billion) stimulus package for the next two years and announced the government would resort to a proactive fiscal and a moderately loose monetary policy.

The mammoth financing package is aimed at reactivating the huge spending potential to make up for external demand insufficiency and containing a possible further sliding of the national economy.

For this purpose, the central government has vowed to step up the construction of projects related to people's livelihoods and major infrastructure. It has also promised to launch a batch of large-size projects that can help reinforce the national economic strength in the long run, and to push for adjustment and optimization of the country's industrial structure.

The shift from the government's previous prudent fiscal and tightening monetary policy to a proactive and moderately loose one remains outstanding in the unveiled investment package. Such a change means the government will make some major adjustments to its long-held macroeconomic arrangement under the changed situations at home and abroad.

As the most important facet of the macroeconomic dimension, the substantive change in the fiscal policy fully manifests the government's strong intention of boosting inactive domestic demand to stem a possible decline in the national economy in the bigger context of the global economic recession.

The shift to a moderately loose monetary policy signals a bigger step the government has taken under the special circumstances. In the foregoing months of this year, the tightening credit policy did not achieve the result as the market had expected. From January to October, the banking credit business increased by 3.66 trillion yuan (US$536 billion), equivalent to last year's total.

As an important means to spur spending, the government vowed to spend a large portion of fund on the construction of some major infrastructure projects. This is surely a much-needed action for a big country that has achieved a sizzling economic progress but has long been plagued by unbalanced development and a weak infrastructure network.

China has still a long way to go to catch up with the developed world either in railway and road construction or in port and urban rail transportation capacity. The large-scale money inflow is expected to significantly accelerate the country's infrastructure construction and boost its transportation sufficiency and capacity.

Of the planned infrastructure projects, quite a few are based in rural areas and closely related with people's livelihoods.

The government's efforts to use infrastructure construction to expand domestic demand and raise people's livelihoods, such as those to solve the housing problem for low-income residents and efforts to strengthen rural infrastructure construction, have not only been in accordance with the spirit embodied in the report delivered by President Hu Jintao to the 17th National Congress of the Communist Party of China (CPC) earlier in March.

They will also map out an unequivocal direction for the national economic growth in the future. The country's economic advancement is mainly for the improvement of living conditions of ordinary people.

To provide them with basic accommodation has long been on the government's top agenda. In the 4-trillion-yuan package, the top authorities have made crystal clear the plan to step up construction of low-priced and low-rental houses for middle and low-income residents and renovation of shanty towns and ramshackle houses in rural areas.

The real estate industry still serves as one of the pillars in the national economy, as Premier Wen put it.

Having long been the overwhelmingly major item for Chinese people's livelihood, housing incurs the largest spending for most people. In the context of the global economic slowdown that will unavoidably dent China's exports, how to solve the housing problem and activate the latent potential of domestic spending remains a pressing task.

Also, a prosperous real estate industry is expected to help boost other sectors. But we should be well aware that the real estate industry that deviates from the correct direction is likely to brew bubbles and may finally evolve into the source of a crisis, just like the US mortgage subprime crisis.

In recent years, the government has time and again stressed how the property industry can serve people's livelihood demands. The latest stimulus package makes even clearer its intention of pursuing a steady and booming real estate industry to expand domestic demand and curb economic downturn.

Now the government faces a challenge on how it can help bring the high housing prices down to the purchasing capacity of most people.

Anyway, there are good reasons to expect the inspiring all-inclusive package will change the previous GDP-first economic growth model and draft a new, scientific guideline for the country's economic development in the years to come.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences

(China Daily November 17, 2008)