Clarifying the Stimulus Plan

At the core of Beijing’s investment strategy is a two-year, 4 trillion yuan economic stimulus plan announced by the government in November.

“Investment expansion is one of the most direct and effective ways to stimulate economic growth,” said Zhang Ping, chairman of the National Development and Reform Commission (NDRC), at an NPC press conference March 6.

The plan calls for the central government to put 1.18 trillion yuan into the pot, with local governments and private sources providing the rest. Beijing’s spending already began with a 104 billion yuan outlay in the fourth quarter 2008. Its expenditures are to include another 487.5 billion yuan this year and 588.5 billion yuan in 2010.

How much that cash will represent fresh spending? All of it, according to Wen.

“This 1.18 trillion yuan is completely newly added,” Wen said March 13 at a press conference in response to public concerns over the investment. He said the spending will include investments in new housing for low-income families, as well as money spending for some roads and railway projects previously proposed as part of the government’s most recent five-year plan.

Projects already on the drawing board had to be included. “How could we otherwise affirm so many infrastructure construction projects within such a short period of time?” Wen asked.

But since the rest of the funds -- 2.82 trillion yuan – are to be raised through local governments and the private sector, a follow-up question is whether the central government’s input can really trigger such huge outlays by stimulus partners.

Under the plan, certain investment projects will require set percentages of input from the central government. For instance, the central government is to shoulder two-thirds of the capital responsibility for school building, as well as provide subsidies of 300 yuan to 400 yuan per square meter for low-income housing construction in central and western parts of the country.

Investments are to mainly target seven sectors, with railways, roads, airports and waterworks accounting for the bulk of the share and 1.5 trillion yuan. Post-earthquake reconstruction mainly in Sichuan Province will receive 1 trillion yuan. Low-income housing, rural civilian infrastructure projects, and public welfare programs will require a combined 92 million yuan.

NDRC’s Zhang said the original stimulus plan announced by the State Council include slight adjustments to investment targets and a major reshaping of investment allocations. The changes were made based on varying opinions from the public, he said.

One area of heated debate is over the 45 percent share of the spending devoted to infrastructure. Critics say that’s too much. Some who object to infrastructure’s dominance point out that a similar government investment plan after the 1998 Asian financial crisis led to redundancies and overbuilding in cities.

“Intense investment results in low returns and has little effect on mobilizing employment,” argued the deputy director of the economic institute at the China Academy of Social Sciences, who is also named Zhang Ping.

According to the academy’s Zhang, urbanization is the key to boosting domestic consumption. And a viable target for investment is low-income housing construction, as it not only improves living standards but also speeds up urbanization. This investment focus is not the largest in terms of spending but was listed first on the government’s investment agenda.