Saving the world
When President Hu Jintao convened the Communist Party Central Committee's economic working conference last week, he warned that the effects of the global financial crisis could hit China's economy hard next year. Many Chinese economists have claimed that 'Chinese characteristics' make the economy immune to global economic effects. Such head-in-the-sand thinking may soon be coming to an end. As China 's gross domestic product growth begins falling below the 8 per cent required to keep angry citizens off the streets, the party is beginning to feel nervous, especially as the number of riots increases throughout the country.
The party's slogan for fighting the global financial crisis, 'save ourselves to save the world', is a reminder of the type of perpetual irresponsibility that most of Europe and North America fear from China's leadership. The formula proposed to achieve the party's objective is equally predicable - spend as much government money on the same kind of infrastructural development as possible to give workers jobs, while lining the pockets of corrupt cadres, thus keeping everyone happy. Certainly, the corrupt cadres will purchase luxury goods with the money they pocket, keeping the high-end side of China 's economy stable. But the world may benefit, too.
China's 4 trillion yuan (HK$4.55 trillion) stimulus package, spread over the next two years, is expected to increase GDP by 1 percentage point or more. Economists looking at the deluge of factory closures in the southern provinces - effectively foreign disinvestment - in the wake of the global financial meltdown have estimated that GDP growth for next year might reach only 6 per cent. However, when the stimulus package kicks in, the economy may be closer to the 8 per cent threshold necessary to allow Mr Hu to sleep soundly without having to worry about a peasant uprising like the one that brought down the Ming dynasty.
For China, the stimulus package is affordable; it proudly estimates that its fiscal income will easily cover the package. But it is estimated that only 1.18 trillion yuan will come from fiscal earnings - with the rest covered by local governments and business, and the issuance of 500 billion yuan of state treasury bonds per year over the next two years. Half of the bonds will be bought by China's state-owned banks, which makes everything terribly convenient. Most banks are technically insolvent anyway, given their range of bad loans, dodgy property projects and state-owned enterprise get-rich-quick schemes, so nobody is worrying too much about that.
Many fear the stimulus package will result in white elephant projects, corruption and embezzlement. The State Council has announced that 24 inspection groups, each led by an official of vice-ministerial rank, will scour the country to prevent unnecessary projects and keep corruption in check. A similar approach was adopted when the then premier, Zhu Rongji, sent vice-minister-led inspection teams to prevent waste and corruption during his own infrastructure spending programme. It seemed to work then, but times have changed: fiscal spending then pales in comparison with that of today.
So there is some truth in the idea that, by saving itself first, China will save the world. Expect a massive number of imports to be used in the projects. Despite Europe's stimulus packages, there is little chance for growth in infrastructure. Expect multinationals to be knocking on China's door, selling their services.
In turn, expect Chinese delegations to visit many countries on official tour packages to inspect projects and products needed for import under the stimulus package. Nightclubs from Hamburg to Las Vegas will flourish! This is good news. China's own global trade relations will develop in a new direction. Foreign investors will be back occupying China's massive five-star hotels, maybe this time without money to invest, but with lots of infrastructure gadgets and maybe some get-rich-quick schemes to sell, as well.
Laurence Brahm is a political economist, author, filmmaker and founder of Shambhala