China announced recently that it would adopt a domestic economy stimulus plan. As reported by Geoff Dyer, Financial Times, “the announcement reflects mounting anxiety in Beijing that China’s economy is cooling much more quickly than was initially expected in the face of weaker international demand and a slowdown in the local property market.“
In practice, this stimulus plan is estimated around 4 trillion RMB (570 billion USD). The money will be spent over the next two years, injecting into various fields, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding in several disaster areas.
To sponsor the industries, tax cuts will be around 12 billion RMB. Also, commercial banks' credit ceilings will be abolished. More lending will be channeled to priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.
"The massive spending plan was expected to play a remarkable role in sustaining growth as 4 trillion yuan investment is an equivalent of one third of the nation's total fixed asset investment last year”, said Zhang Liqun, researcher with the Development Research Center of the State Council.
In order to make the stimulus plan work out, the Chinese government will also take "moderately active" monetary policy. “The active fiscal policy alone would not bear much fruit without the coordination of easing monetary policy. The two should work together to confront the economic complexity of home and abroad.” said Yuan Gangming, researcher with the Center for China in the World Economy of Tsinghua University.
The global crisis finally begins to affect China’s economy. With the decreasing scales of export, boosting domestic market may be the only way to keep the economic growth. The policy change comes out from this background. Actually, in the past three months a series of stimulus policies e.g. interest rate cuts, lower bank reserve requirement ratios, tax changes, higher credit quotas and the injection of central government funds to infrastructure construction have been taken into place.
After all, a healthy Chinese economy is not a bad thing to all those countries who are suffering in the crisis. The crisis may become a new opportunity for China to speed industrial restructuring, introduce advanced technologies and talents from abroad.