Nation gears up to spend its way out of slowdown
Date September 9, 2012
CHINA'S central government is to launch a $150 billion spending package on roads and infrastructure projects, joining the country's regions in a blitz of stimulus to keep flagging growth alive.
The National Development and Reform Commission has approved 60 new projects, led by railways, roads, harbours, and airports.
The Shanghai Composite Index jumped 3.7 per cent on the news as steel shares came back from the dead.
The stimulus plan follows a blizzard of grim data over recent weeks, with China's HSBC manufacturing index for August falling to its lowest level since the financial crisis in 2009, raising concerns that the calibrated ''soft landing'' had slipped out of control.
The yuan1 trillion ($150 billion) package is much smaller than the yuan4 trillion stimulus that followed the Lehman crisis but is large when combined with programs from the provinces.
The cities of Chongqing and Tianjin have each unveiled programs worth $240 billion.
While the plethora of plans are stretched over several years - and lack obvious sources of funding to cover a yuan7 trillion headline total - it is clear that the Politburo is sufficiently alarmed by the mini-slump of recent months to put its reform drive on hold, opting instead for prime pumping to help the Communist Party through its handover of power later this year.
Cheng Li, research director at the Brookings Institution, said that Beijing slammed on the brakes too hard last year to break the back of the property boom. ''They didn't expect the market reaction to be so strong and bring down the whole economy,'' Mr Cheng said, speaking at the Ambrosetti world strategy conference in Como, Italy.
Mr Cheng said that a key reason for the hard landing was a ''crisis of legitimacy'' in the upper echelons of Chinese leadership, with fears growing that the transition could prove unruly, as 70 per cent of top cadres and the military are set to be replaced.
''You cannot forecast the Chinese economy unless you have a sophisticated view of the political landscape and the current succession crisis,'' he said.
''This legitimacy crisis is worse than in 1989 [Tiananmen Square], and may be the worst in the history of the Communist Party.
''People are afraid that it could lead to revolution if it is not handled well,'' he said. ''That is what is causing capital flight. All the top officials are trying to get their money out of the country.''
