Even with big, mythological adjectives like “titanic”, “gargantuan”, or “colossal” placed in front of it, the phrase “fiscal stimulus package” does not begin to explain what happened in Beijing on Sunday night.
“Olympic” comes closest. This was truly the Beijing Games of fiscal stimulus packages: impressive, suppressive and excessive.
Common-or-garden stimulus packages are what governments in places like Britain, South Korea and Japan do to stimulate their economies. China’s $586 billion splurge is something entirely different. If Washington directed an equivalent percentage of its GDP at a stimulus package, it would be worth more than $2.2 trillion, and would consequently be utterly terrifying.
And, on closer inspection, China’s could indeed be something scarier than just a big stimulus package. Neatly disguised as the Kool-Aid that everyone else is drinking at the moment, Beijing’s offering is actually a knockout cocktail of political manifesto, Great Game diplomacy and domestic Riot Act.
There are three vital questions which that volume of money raises – beyond the technically critical issue of precisely where, and in what order, the money will be spent. The details were tantalisingly vague, and given the suspicion that Beijing may be double-counting investment plans already announced, economists are already at odds over how close the package’s actual financial impact will be, compared with its dramatic face value.
Question one, therefore, is: does this package guarantee a soft landing? There are plenty who think that on the basis of sheer size it will, and will do so at what is probably an affordable level for a country with relatively low debt-to-GDP ratios. For those that believed Chinese growth could slow into the 6.0 per cent region next year, this package should provide the four extra percentage points of growth that will haul the show back onto the road. Several analysts, having begun to wobble last week, told clients yesterday that they were now comfortable with their existing growth forecasts for China next year – the sort of forecasts that put growth in the 8.0 per cent region for 2009 and 8.1 per cent for 2010.
But question two is: what does such a vast figure tell us about what Beijing knows and fears? Certainly – and this is where the political manifesto and Riot Act elements come in – this is a package designed both to soothe and stir. The government’s legitimacy is heavily dependent on its continued ability to deliver what Chinese have grown used to – not just the big-figure GDP numbers, but the assurances that urban growth is strong enough to support itself. Chinese moving from the country to cities has, over the past decade, been perhaps history’s biggest ever flow of human migration. Depending on which analyst you listen to, that flow is supported by minimum economic growth rates of between 6 per cent and 8 per cent. Slip below that, and the millions of workers in the Pearl River Delta expected to lose their jobs next year may start wondering out loud whether those jobs are ever coming back. Those people are not all going to jump on a train back to the sticks, which could make for some very noisy urban disappointment. There are already economists who were, before Sunday, predicting that 2009 growth would fall below 6 per cent – if Beijing’s own internal charts showed the same thing, then the package starts to make an awful lot of sense. There will also be some stirring: the policies announced yesterday target issues that were becoming bottlenecks for long-term growth – social welfare provision, public transport etc. Exposure to global crisis, if that is indeed what this package exposes, is being turned into an opportunity to solve some persistent flaws in the Chinese story.
The last question is: what does this package do for China on the world stage?
There is a certain amount of Beijing demonstrating how terribly responsible it is. The world meets this week to discuss who is doing what, and China brandishes a package that eclipses anything anyone has ever seen. Much like that firework display at the Olympic opening ceremony.
But also swirling around Sunday’s announcement is the tacit question of what China can do for a broken financial system. Imagine the Great Gamesmanship of introducing a stimulus package so vast that it not only saves your own economy from decline, but establishes it as an engine of global recovery. Swaggering rights well worth $586 billion if the trick worked.
There is a tongue-in-cheek email doing the rounds at the moment showing the development of Chinese political and economic beliefs across the last 60 years. Perhaps Messrs Wen and Hu are taking it seriously.
1949 (Chinese revolution): Only socialism can save China.
1979 (Deng Xiaopeng’s reforms): Only capitalism can save China
1989 (Fall of the Berlin Wall): Only China can save Socialism
2009 (Global financial crisis): Only China can save Capitalism.
source: business.timesonline.co.uk
Recent Comments