The 2008–09 Chinese economic stimulus plan () is a RMB¥ 4 trillion (US$586 billion) stimulus package announced by the State Council of the People's Republic of China on 9 November 2008 as an attempt to minimize the impact of the

financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...

on the economy of China. Critics of China's stimulus package have blamed it for causing a surge in Chinese debt since 2009, particularly among local governments and state-owned enterprises. The economic stimulus plan was seen as a success and while China's economic growth dipped sharply to almost 6% during 4Q 2008 and 1Q 2009 it had recovered to over 8% in Q2 2009 and over 10% in Q3 2009. The

World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...

subsequently went on to recommend similar public works spending campaigns to western governments experiencing the effects of the financial crisis but the U.S. and EU instead decided to pursue long-term policies of

quantitative easing Quantitative easing (QE) is a monetary policy action whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary pol ...

(the buying of trillions of dollars worth of government bonds or other financial assets in order to stimulate the economy and increase liquidity).

Announcement

A statement on the government's website said the State Council of the People's Republic of China had approved a plan to invest 4 trillion yuan in infrastructure and

social welfare Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...

by the end of 2010. This stimulus, equivalent to US$586 billion, represented a pledge comparable to that subsequently announced by the United States, but which came from an economy only one third the size.Can China Manage Its Economy?
/ref> 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 The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...

and

Europe Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a subcontinent of Eurasia and it is located entirel ...

, 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.

President

Robert Zoellick Robert Bruce Zoellick (; ; born July 25, 1953) is an American public official and lawyer who was the eleventh president of the World Bank, a position he held from July 1, 2007 to June 30, 2012. He was previously a managing director of Goldman Sach ...

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.

Details

2008

On the 15 of November, 2008, 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, 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 Commission The National Development and Reform Commission of the People's Republic of China (NDRC), formerly State Planning Commission and State Development Planning Commission, is a macroeconomic management agency under the State Council, which has b ...

' 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 in May 2008; that was followed by funding for social welfare plans, including the construction of low-cost housing, rehabilitation of

slums A slum is a highly populated urban residential area consisting of densely packed housing units of weak build quality and often associated with poverty. The infrastructure in slums is often deteriorated or incomplete, and they are primarily in ...

, and other

social safety net The social safety net (SSN) consists of non-contributory assistance existing to improve lives of vulnerable families and individuals experiencing poverty and destitution. Examples of SSNs are previously-contributory social pensions, in-kind and fo ...

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 for revitalizing 10 selected industries. To ensure sustainable development, 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 is a professional engineering discipline that encompasses broad scientific topics like chemistry, biology, ecology, geology, hydraulics, hydrology, microbiology, and mathematics to create solutions that will protect and ...

projects. Finally, 150 billion yuan was allocated for educational, cultural and family planning 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 GDP, 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 real economic growth was around 10 percent even as European and North American economies were slowing.Shikha Dalmia, Anthony Randazzo. China's Looming Real-Estate Bubble. Wall Street Journal (Eastern Edition) erial online August 21, 2010:A.9. Available from: ABI/INFORM Global. Accessed September 6, 2010, Document ID: 2115847801 The stimulus provided funds for infrastructure projects and housing developments. Some were used to assist local governments in lending to state-owned enterprises for housing and infrastructure projects. This focus on construction expanded employment in not only construction, but also manufacturing, steel, cement and other sectors producing inputs to the construction sector. Some analysts suggested that the stimulus program could generate inflation and a property bubble. Due to the success of the economic stimulus plan, the central government tightened financial regulation in order to restrict lending amid fears of a property bubble.

2011

In 2011, it was revealed that as much as 20% of the loans under the program may be written off.

2012

In September 2012, the Chinese government through the National Development and Reform Commission gave approval for 60 infrastructure projects totalling more than 1 trillion yuan ($157 billion).

Responses

The stimulus package has been criticized for causing a surge in Chinese debt after 2009. In 2011,

Minxin Pei Minxin Pei (; born 1957 in Shanghai) is a Chinese-American political scientist and expert on governance in China, U.S.-Asia relations, and democratization in developing nations. He is currently the Tom and Margot Pritzker '72 Professor of G ...

criticized Beijing for "resorting to massive bank lending to local governments, which then went on an infrastructure spending binge that's certain to haunt the country for years to come". A 2014 study by global think-tank Carnegie Endowment for International Peace concluded that "

hina Hina may refer to: People and deities * Hina (given name), including a list of people and fictional characters with the name * Hina (chiefess), a name given to several noble ladies who lived in ancient Hawaii * Hina (goddess), the name assigned to ...

s debt problems are rooted in the government's November 2008 announcement of a 4 trillion yuan ($586 billion) stimulus package to counteract the effects of the global financial crisis."

References

External links

FACTBOX - China's recent measures to spur growth
(timeline) {{Economy of China Economic stimulus program 2000s economic history Stimulus program Economic stimulus programs Economic development programs