While China's successful story of weathering the 1997 Asian financial storm is still fresh in minds, the country is trying to repeat the feat once again, this time, on a much grand scale, a much faster fashion and against a much worse crisis.
The State Council of China unveiled a 4 trillion yuan (US$586 billion) stimulation package on November 9 to help the country thwart the economic slowdown amid the worst global financial crisis since 1929.
The prompt and swift move will not only preserve the fruits of the country's 30 years of reform and opening-up initiative but also give the rest of the world a much-needed sentiment boost.
The massive economic boost package, which JP Morgan chairman of China Equities Jing Ulrich calls a "New Deal with Chinese characteristics", will tap 10 areas ranging from budget housing, rural and urban infrastructure to medical clinics and raising people's incomes.
The proposed stimulus investment, which is to be spent from now till 2010, will be implemented in a "swift, effective and forceful" manner, the State Council says.
"These unusually strong statements suggest that the authorities are very eager to boost private sector confidence through making a very strong commitment to maintaining strong growth," says Wang Qing, chief China economist with Morgan Stanley Asia.
Larger than 1997
The huge demand-boosting plan is similar to what China did during the 1997 Asian financial turmoil.
Scratch further, however, vast differences between them emerge.
"The sheer size of the package and the fresh focus on consumption side are the most striking features of the stimulus plan this time", says Shen Minggao, chief economist with China's leading business and financial magazine Caijing.
In the 4-trillion-yuan stimulus package, the central government will spend 1.18 trillion yuan by the end of 2010, Mu Hong, vice-minister of National Development and Reform Commission said last Friday.
"Even the 1.18 trillion yuan, not the headline 4 trillion yuan, is much bigger than the amount the central government spent in the aftermath of Asian financial crisis," says Shen, a former China chief economist for Citigroup Inc.
From 1998 to 2004, the central government issued a total of 910 billion yuan of long-term treasury bonds to finance the stimulus plan.
These were supplemented by 3.28 trillion yuan investment from other sources, contributing 1.5 to 2 percentage points to GDP growth then, according to Shen's estimates.
"This time, the central government is planning to spend 1 trillion yuan in each of the next two years, while last time it spent 910 billion yuan in six years," says Shen, who estimates the stimulus plan would contribute about 2 percentage points to China's GDP growth next year.
His view is shared by Morgan Stanley's Wang.
"The policy mix of 'proactive fiscal and moderately loose monetary policies' is stronger than the one adopted in the aftermath of Asian financial crisis," Wang says, referring to government's decision to shift the monetary policy from "relatively tightened" to "moderately loose".
In addition to its immense scale, economists say the stimulus plan covers several sectors that are clearly intended to prop up consumption, moving away from the previous focus on infrastructure investment.
The plan stipulates that investment will flow into welfare housing, healthcare services, education and other social safety net projects.
And the government will increase the purchasing price of grains and dole out subsidies to agricultural equipment, moves intended to raise farmers' income.
"This is a sparkling policy having improving people's lives incorporated into the stimulus package," says Sun Lijian, vice dean of the School of Economics at Shanghai-based Fudan University.
"Relieving people's concerns about housing, education and medical care spending will directly spur them to consume more," Sun says.
With consumption only accounting for about 36 percent of GDP and investment 42 percent in 2007, a well-primed fiscal pump will make a huge difference, economists say.
Consumption is an area China should strive to tap especially at a time when the exports, one of the main engines for country's economic growth, slows down in its growth, economists say.
China's dependence on exports has grown stronger after the 1997 Asian financial crisis. Exports accounted for 19.2 percent of the GDP in 1997, and the figure soared to 37.5 percent in 2007.
While the 1997 Asian financial crisis was mainly a regional one, the ongoing financial turbulence originated in US has become a global curse, dragging down US, Europe, Japan and other developed economies, which receive a lion's share of Chinese exports.
(China Daily November 17, 2008)
