While global leaders are discussing a new Bretton Woods order, Premier Wen Jiabao is busy figuring out how to boost growth in China amid the global financial chaos. Growth forecasts have all dropped. and China is particularly sensitive to this. It has been accepted for some time that if gross domestic product growth dropped below 8 per cent a year, jobless figures would rise and, with them, social unrest.
Forecasts for next year show GDP growth dipping below 8 per cent. Some forecast 6 per cent, while some pessimists within the government put it as low as 5 per cent. With factories closing across southern China and workers being laid off, the government is concerned about social stability.
Bao zengjiang, or 'safeguard growth', has been a slogan but it is now evolving into a potential political movement. Last month, the State Council approved its own rescue plan - a blind copy of the one US Treasury Secretary Henry Paulson proposed.
It is the old formula from premier Zhu Rongji's era - spend money on infrastructure and get people back in work. He was, after all, Mr Wen's mentor. The difference is that when Mr Zhu put the programme into action, in the 1990s, China desperately needed the infrastructure. Now, it is in oversupply. This is where part of the problem lies; China is reinvesting in the same type of projects that were built more than a decade ago.
From 2003, the central government put in place macro controls to cap growth. Large infrastructure project approvals were put on hold by the National Development and Reform Commission (NDRC). Now, these controls are being rolled back to maintain growth. So will this hyperspending on infrastructure lift China out of potential financial chaos, or throw the nation into turmoil?
Much of the 4 trillion yuan (HK$4.54 trillion) rescue package will be spent on infrastructure. But, unlike the good old socialist days, when provinces had to apply to the central government for financing, in this case they are applying to receive permission to spend their own money.
Chaos will ensue. This is a vast amount of money to spend within a relatively short period. So, officials are scrambling to come up with 'beauty-show projects'. Those who have drawers stuffed with rejected hare-brained projects are pulling out anything requiring an injection of fixed-asset investment. All this is a blank cheque for excess construction.
However, insiders estimate that governments' actual spending power under this new plan is as high as 10 trillion yuan, because the rescue package has been added to the existing budget for the 11th five-year plan. This is a shocking amount to spend over the next few years.
How were the funds raised? Each province committed funds. For instance, Jiangsu province put forward 600 billion yuan for 180 projects to be build between now and 2012. Each province is guaranteeing that it will carry out so many projects in a year. Most projects, however, are unnecessary, so the government is simply committing to spending vast amounts of money. The substantial risk is that China is probably about to fuel its biggest-ever surge in corruption.
In major developed cities such as Beijing, Shanghai and Guangzhou, many projects have been submitted to the NDRC, which is just blindly approving anything. The money is going towards roads, railways and port projects - not new hospitals or schools, which are desperately needed, or into environmental protection and the development of less-polluting fuel sources.
Given a platform for unprecedented corruption, we should remember that so many children died in the Sichuan earthquake in May due to the poor construction of schools, with claims that officials and contractors pocketed the money they had saved on building quality. In private, some people say this kind of spending reflects the mood of the Great Leap Forward, when everyone blindly melted steel. Alas, the results may be the same.
Laurence Brahm is a political economist, author, filmmaker and founder of Shambhala