China goes fiscal

Written by Uln on November 9th, 2008

Just as I was writing the previous entry, I came across this article on the NYT about the packet of fiscal measures that China is taking to the upcoming G20 meeting in Washington. The $586 Billion Stimulus Plan has been announced today on the government website. I was surprised I hadn’t seen it come on Xinhua, but here it is.

It is good news that China, as opposed to the Bush administration in the States, is taking measures to prevent the Crisis before their system has actually started to melt. It proves that, while they continue to give a reassuring image of solidity to the outside, Chinese policy-makers are well aware of the delicate situation of the economy and the risk of the crisis hitting them badly. Hopefully, the rest of the world will take note of this and stop believing that China is going to solve everybody’s problems.

After cutting interest rates and loosening up the credit conditions last week, China is following up with a plan to spend 4 trillion yuan over the next two years on 10 different areas, including infrastructure, tax-cuts, environment, technology and social welfare (in unspecified proportions). It is difficult to imagine how China can increase even more its investment in infrastructure when already every road and township in the country is a construction site. Still, with their margin of action in monetary policy limited by their own currency regime, fiscal is clearly the way to go.

More interesting in the long term is the investment in environment and social welfare, which should work together with the announced land reform to bring all those millions of Chinese peasants into the economy. As I said in my previous post about the Crisis, this move, which is very much in line with Mr. Hu’s and Mr. Wen’s harmonious political ideas, will hardly have an effect rapid enough to prevent the crisis. But it is nevertheless good news that, from these times of economic turmoil,  something good will come to the dispossessed.

After all, it might very well be that a serious crisis is actually needed in this country for some people to realize the importance of equality, solidarity and justice.

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