China's pro-active fiscal policy and moderately loose monetary policy

To help the world's third largest economy weather the global economic downturn, the Chinese government adopted pro-active fiscal policy and moderately loose monetary policy, which have bolstered the economic growth and ensured eight percent growth target for 2009.

The State Council, or the Cabinet, announced on Nov. 5, 2008 at an executive meeting chaired by Premier Wen Jiabao that the government decided to shift the fiscal policy from "prudent to pro-active" and the monetary policy from "tight to moderately loose", in an attempt to stimulate the economy by expanding domestic demand to offset a slump in exports resulted from the global economic crisis.

As a part of the pro-active fiscal policy, the Cabinet unveiled a four-trillion-yuan (585 billion U.S. dollars) stimulus package at the meeting, aiming to bolster domestic demand.

The four-trillion yuan will be spent over two years to 2010 to finance programs in 10 major areas.

Roughly 1.5 trillion yuan will go to infrastructure construction including railways, roads, airports, urban power grids and irrigation projects. That takes up the biggest share of the money.

As for others, low-income housing projects will get 400 billionyuan.370 billion yuan will be used to improve rural infrastructure and people's well-being. Some 150 billion yuan will help improve health care, education and cultural development. Energy saving and ecological projects will get 210 billion yuan. 370 billion yuan will fund innovation and industrial restructuring.

About one trillion yuan will fund rebuilding areas hit by the May 12Wenchuan earthquake.

The four-trillion-yuan package includes 1.18 trillion yuan investment from the central government and the rest from local governments and enterprises.

Among the newly added investment from the central government, 104 billion yuan was allocated for the fourth quarter of 2008, 487.5 billion yuan for 2009, and 588.5 billion yuan for 2010.

China set the budget for public spending at 908 billion yuan in 2009, including the newly-added 487.5 billion yuan investment from the central government. As of the end of November, 862.6 billion yuan had already been allocated, accounting for 95 percent of the 2009 budget.

The pro-active fiscal policy also includes a comprehensive reform in value-added taxes, which would allow companies to deduct the cost of capital equipment, saving them about 120 billion yuan a year.

China announced in March a fiscal deficit budget of 950 billion yuan for 2009, a record high in six decades. The total deficit accounted for less than three percent of China's gross domestic product (GDP).

To back the investment plans and expand domestic demand, the People's Bank of China, or the central bank, scrapped lending limits of commercial banks in earlier November of last year to offer more loans to the economy.

The moderately loose monetary policy spurred the surge of new bank lending since last November.

2008: November: 476.9 billion yuan, December: 771.8 billion yuan.

2009: January: 1.62 trillion yuan, February: 1.07 trillion yuan, March 1.89 trillion yuan, April: 591.8 billion yuan, May: 664.5 billion yuan, June: 1.53 trillion yuan, July: 355.9 billion yuan. August: 410.4 billion yuan, September: 516.7 billion yuan, October: 253 billion yuan, November: 294.8 billion yuan.

In the first 11 months of this year, new bank loans hit 9.21 trillion yuan, an increase of 5.06 trillion yuan over the same period of last year, far exceeding the full year target of five trillion yuan the government set this March.

The pro-active fiscal policy and the moderately loose monetary policy were effective in driving up economic growth as they geared the economy on track of recovery for its target of eight percent. The GDP growth stood at 7.7 percent in the first three quarters, with 8.9 percent in the third quarter, faster than the 7.9 percent in the second quarter and the 6.1 percent in the first quarter.

As the outlook of the global economy remains uncertain in 2010,the central government pledged at the Central Economic Work Conference earlier this month that it would stick to the pro-active fiscal policy and moderately loose monetary policy in 2010 to sustain a recovery backed by the stimulus packages.  

Source: Xinhua