2008 Chinese economic stimulus plan
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Renminbi
The Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...
4 trillion (US$ 586 billion) stimulus package
Stimulus (economic)
In economics, stimulus refers to attempts to use monetary or fiscal policy to stimulate the economy. Recently "stimulus" has become particularly associated with Keynesian economics and the theory that government spending projects can generate economic growth in a recession...
announced by the central government
Central People's Government
The Central People's Government is the central government of the People's Republic of China in Beijing. According to the 1982 Constitution, "Central People's Government" is synonymous with the State Council.-History:...
of the People's Republic of China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
on 9 November 2008 as an attempt to minimize the impact of the global financial crisis on the world's second largest economy
Economy of the People's Republic of China
The People's Republic of China ranks since 2010 as the world's second largest economy after the United States. It has been the world's fastest-growing major economy, with consistent growth rates of around 10% over the past 30 years. China is also the largest exporter and second largest importer of...
. Critics of China's stimulus packet have maintained that it has made matter worse by pumping excessive investments into an economy which already was overheated and marked by overcapacity and overinvestment.
On June 2009, the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
raised its growth forecast in China for 2009 from 6.5% to 7.2% amid signs that the economy is doing better than expected, which has been helped by the stimulus package. But it says the country's exports are still down, as the rest of the world struggles with the global recession. It was previously predicted in March 2009 that the Chinese economy
Economy of the People's Republic of China
The People's Republic of China ranks since 2010 as the world's second largest economy after the United States. It has been the world's fastest-growing major economy, with consistent growth rates of around 10% over the past 30 years. China is also the largest exporter and second largest importer of...
would grow by 6.5% in 2009, several percentage points down on 2008's growth.
Announcement
A statement on the government's website said the State CouncilState Council of the People's Republic of China
The State Council of the People's Republic of China , which is largely synonymous with the Central People's Government after 1954, is the chief administrative authority of the People's Republic of China. It is chaired by the Premier and includes the heads of each governmental department and agency...
had approved a plan to invest 4 trillion yuan
Renminbi
The Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...
in infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
and social welfare by the end of 2010. This stimulus, equivalent to US$586 billion, represented a pledge comparable to that subsequently announced by the US, but which came from an economy only one third the size. The stimulus package will be invested in key areas such as housing, rural infrastructure, transportation, health and education, environment, industry, disaster rebuilding, income-building, tax cuts, and finance.
China's export driven economy started to feel the impact of the economic slowdown in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
, and the government had already cut key interest rates three times in less than two months in a bid to spur economic expansion.
The stimulus package was welcomed by world leaders and analysts as larger than expected and a sign that by boosting its own economy, China is helping to stabilize the world economy
World economy
The world economy, or global economy, generally refers to the economy, which is based on economies of all of the world's countries, national economies. Also global economy can be seen as the economy of global society and national economies – as economies of local societies, making the global one....
. World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
President Robert Zoellick
Robert Zoellick
Robert Bruce Zoellick is the eleventh president of the World Bank, a position he has held since July 1, 2007. He was previously a managing director of Goldman Sachs, United States Deputy Secretary of State and U.S. Trade Representative, from February 7, 2001 until February 22, 2005.President...
declared that he was ‘delighted’ and believed that China was ‘well positioned given its current account surplus and budget position to have fiscal expansion.' News of the announcement of the stimulus package sent markets up across the world.
2008
As of November 15, 2008, Beijing standard time, it was revealed that the central government would only provide 1.2 trillion yuan of funds. The rest of the funds will be reallocated from the budget of provincial and local governments.Chinese banking officials were reportedly considering establishing a fund worth between 600 billion and 800 billion yuan to purchase domestic shares listed on the Shanghai Stock Exchange
Shanghai Stock Exchange
The Shanghai Stock Exchange , abbreviated as 上证所/上證所 or 上交所, is a stock exchange that is based in the city of Shanghai, China. It is one of the two stock exchanges operating independently in the People's Republic of China, the other is the Shenzhen Stock Exchange...
, particularly those in the Shanghai Composite, in the event the Shanghai Index fell to 1,500 points.
2009
On March 6, 2009, China's National Development and Reform CommissionNational Development and Reform Commission
The National Development and Reform Commission , formerly State Planning Commission and State Development Planning Commission, is a macroeconomic management agency under the Chinese State Council, which has broad administrative and planning control over the Chinese economy...
announced a revision of the stimulus and published a breakdown of how the funds would be distributed.
Public infrastructure development took up the biggest portion – 1.5-trillion yuan, or nearly 38% of the total package. The projects lined up include railway, road, irrigation, and airport construction.
The second largest allocation – one trillion yuan – went to reconstruction works in regions hit by the 8-magnitude Sichuan earthquake
2008 Sichuan earthquake
The 2008 Sichuan earthquake or the Great Sichuan Earthquake was a deadly earthquake that measured at 8.0 Msand 7.9 Mw occurred at 14:28:01 CST...
last May; that was followed by funding for social welfare plans, including the construction of low-cost housing
Low-cost housing
Low-cost housing may refer to:*Affordable housing*Subsidized housing*Low cost housing in Pakistan...
, rehabilitation of slums, and other social safety net
Social safety net
Social safety nets, or "socioeconomic safety nets", are non-contributory transfer programs seeking to prevent the poor or those vulnerable to shocks and poverty from falling below a certain poverty level. Safety net programs can be provided by the public sector or by the private sector...
projects.
Rural development and technology advancement programs shared the same amount of allocation – at 370 billion yuan each. Rural projects in the pipeline included building public amenities, resettling nomads, supporting agriculture works, and providing safe drinking water.
Technology advancement mainly targeted at upgrading the Chinese industrial sector, gearing towards high-end production to move away from the current export-oriented and labor-intensive mode of growth. This was in line with the government's latest Blueprint
Blueprint
A blueprint is a type of paper-based reproduction usually of a technical drawing, documenting an architecture or an engineering design. More generally, the term "blueprint" has come to be used to refer to any detailed plan....
for revitalizing 10 selected industries.
To ensure sustainable development
Sustainable development
Sustainable development is a pattern of resource use, that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for generations to come...
, the Chinese government also allocated some 210 billion yuan, or 5.3% of the stimulus package for promoting energy saving and gas emission cuts, and environmental engineering
Environmental engineering
Environmental engineering is the application of science and engineering principles to improve the natural environment , to provide healthy water, air, and land for human habitation and for other organisms, and to remediate polluted sites...
projects.
Finally, 150 billion yuan was allocated for educational, cultural and family planning
Family planning
Family planning is the planning of when to have children, and the use of birth control and other techniques to implement such plans. Other techniques commonly used include sexuality education, prevention and management of sexually transmitted infections, pre-conception counseling and...
purposes.
One year later, these programs seem to have been even more successful than expected, so that on November 4, 2009, the World Bank group enhanced its "prognosis" of the Chinese BIP, by +1.2 %, to a value of +8.4 %.
2010
China's economic growth was sustained by the economic stimulus and in addition, assisted neighboring countries with the economic recovery in 2010. Chinese economic growth was around 10 percent even as its European and North American economies were slowing. The stimulus provided funds for infrastructure projects and housing developments. Some were used to assist local governments to lend money to state-owned companies to develop housing estates, roads and bridges. This will drive employment in areas of manufacturing, steel, cement and other sectors of the economy. There is also a risk of the stimulus generating inflation and a property bubble.Due to the success of the economic stimulus plan, the central government has tightened regulation in the financial system on banks to curb lending amid fears of a property bubble which could put a dent on economic recovery.
2011
In 2011 it was revealed that as much as 20% of the loans under the program may be written off.See also
- 2000s energy crisis
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- Late-2000s recession
- List of entities involved in 2007–2008 financial crises
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