Changing economy needs new approach to stimulus

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Changing economy needs new approach to stimulus

(Global Times) 08:59, August 15, 2013

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Xu Shaoshi, director of the National Development and Reform Commission, said recently that China will introduce stimulus measures in the second half that will bring into play the importance of consumption and investment for the economy. To ease downward pressure on the economy, investment will be vital when it comes to stabilizing growth.

According to analysts, the new round of investment will be more reasonable and scientific, and not just a simple injection of funds into the economy.

Attitudes toward investment have worsened in the years since the government introduced a 4 trillion yuan ($650 billion) stimulus package in 2008. This money, which was slated to fund infrastructure projects and offset the impact of the global financial crisis, saddled local governments across the country with enormous debt burdens.

"The 4 trillion yuan investment was for emergency relief at the time. The feasibility and risks of some projects were not fully discussed, and over-intervention from the administration led to low investment returns and exacerbated overcapacity," Xu Hongcai, director of the information department at the China International Center for Economic and Technical Exchanges, told People's Daily.

But this latest round of stimulus is different in that it will help adjust the structure of the economy and capital deposits. This time the government will make more investment opportunities available to private capital and the market, said Xu Hongcai.

Meanwhile, Xu Shaoshi said that investment has promoted stable economic growth so far this year. Fixed-asset investment grew 20.1 percent in the first half, a drop of just 0.3 percentage points year-on-year; while private investment expanded 23.4 percent, well above the rate of overall investment during the same period.

The latest round of government spending will focus on the construction of infrastructure and public facilities as well as the upgrading of rural electrical grids, among other key projects identified for the 12th Five-Year Plan period, said Xu Shaoshi.

Addressing concerns that this round of investment will lead to waste and overcapacity, Xu Hongcai noted that many new investments will target weak areas in the economy, such as railway construction in China's midwestern regions, which can improve mobility and logistical efficiency as well as people's livelihoods. Some projects will also benefit urbanization and environmental protection.

This new stimulus plan will also see the government take on a supervisory role instead of a leadership role, a shift which marks yet another break from the past. "As long as the government steps back and lets private enterprises tackle these projects, China can realize both high investment returns and increased efficiency," said Fan Jianping, chief economist at the State Information Center.

Xu Shaoshi went on to say that the government will lower the threshold for investment projects, continue to encourage private investment in provincial and infrastructure projects, develop small- and medium-sized financial institutions that cater mainly to small- and medium-sized enterprises, and promote stable investment growth in real estate.

（Editor：WangLili、Gao Yinan）