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China needs to correct imbalance while stimulating economy
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In his analysis on Caijing Magazine, economist Dr. Shen Minggao points out that China's recently announced economic stimulus package cannot provide much shelter from the global economic storm for the country's private businesses and light industry, whereas it will prove very beneficial to state-owned enterprises (SOE) and heavy industry. If the country wants to achieve a productive outcome from its costly economic stimulus package, China needs to redress this imbalance, says Dr. Shen.

The Infrastructure construction favored by the stimulus plan, especially in railways and house building, will boost production of construction materials like steels and cement, and fuel demand in the energy industry. All these businesses are dominated by SOEs; private companies, especially medium- and small-size foreign trade ventures, will be left with only a small slice of the cake.

Major investment in infrastructure will also boost financial businesses such as banks and insurance companies, in which the state again plays a major role.

Dr. Shen says the country needs to put just as much emphasis on consumption as it does on investment. To this end, China should let the market play its part in adjusting the prices of agricultural products to ensure farmers' income and spending capacity. What's more, the government should cut individual income tax.

With export demand shrinking, Chinese companies that depend too much on the export trade should make the most of governmental initiatives to change their business models and make domestic markets their priority. In this way, they will create room to develop, Dr. Shen adds.

(China.org.cn by Pang Li, November 18, 2008)

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