No hard landing for China's economy
- By John Ross
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E-mail China.org.cn, September 19, 2012
The report urged the state to "get out" of the economy. Many supporting the stance argued that China's 2008 state-sponsored stimulus program to counter the effects of the international financial crisis had been a mistake due to its negative side effects, such as rising real estate prices – ignoring that the effects were small compared to the fact that due to the stimulus China's economy expanded over 40 percent since 2008, compared to the US's 2 percent increase and a decline in the EU.
In 2012, with fixed investment falling, the opposite conclusions to the report were required – the government needed to "get into"the economy to boost investment. With low private investment internationally due to the financial crisis, and with growth declining in China, the idea that a fall in investment growth would be reversed by the private sector was an illusion. Consequently, by mid-2012 China's economy slowed more than was necessary due to a further slowdown internationally.
These policy mistakes are now being corrected. Instead of the fatally misguided formula of "consumer-led growth", Premier Wen Jiabao has rightly emphasized "a pattern in which economic growth is jointly driven by consumption, investment and exports. "A $154 billion state-stimulated investment program has been announced instead of simply waiting for the private sector to fill in the gap. Wen also strongly defended the 2008 economic stimulus, saying "China was among the first to achieve an economic upturn… Some people made accusations about China's package plan in disregard of facts and they even said that we paid an undue price in this process... it was exactly due to our resolute decision and scientific response that China was able to avoid factory closures, job losses and return of migrant workers to their home villages."
If China's government continues these corrections, growth will accelerate towards the end of 2012. Indeed there will be an international test of two massive stimulus policies – China pursuing an investment-led stimulus and the US's implementation of QE3. As has been the case since the beginning of the international financial crisis, China's plan will produce stronger economic growth.
The author is a columnist with China.org.cn. For more information please visit: http://www.china.org.cn/opinion/johnross.htm
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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