Backgrounder: China's stimulating policies in financial crisis

China's massive stimulus plan has been proved to be effective and China's economy has bottomed out and witnessed a sound recovery, said Chinese Premier Wen Jiabao during an online chat with Netizens Saturday.

Following are some details of policies the world's third largest economy has taken to counter the adverse impacts of the global financial crisis:

The State Council, or the Cabinet, announced on Nov. 5, 2008 to unveil a 4-trillion-yuan (585.7 billion U.S. dollars) stimulus package and to shift the fiscal policy from "prudent" to "proactive" and the monetary policy from "tight" to "moderately loose".

The 4 trillion yuan will be spent over two years to 2010 to finance programs in 10 major areas. A total of 1.18 trillion yuan, or 29.5 percent of the total package, is offered by the central government. The remaining fund will be supplied by local governments and the private sector.

Investment portfolio of the 4-trillion-yuan stimulus plan:

-- Infrastructure enjoys the biggest share of the spending plan, with 1.5 trillion yuan, or 37.5 percent, to be spent on construction projects, including railways, roads, airports, urban power grids and irrigation projects.

-- One trillion yuan is to fund the rebuilding areas hit by the May 12 Wenchuan earthquake.

-- Affordable housing will receive 400 billion yuan, public facilities in rural areas and industrial restructuring will get 370 billion yuan each, 210 billion yuan will go to energy-saving and eco-friendly projects.

-- The remaining 150 billion yuan will be deployed to fund health care, education and cultural development.

Among the 1.18-trillion-yuan newly added investment from the central government, 104 billion yuan is allocated for the fourth quarter of 2008, 487.5 billion yuan for 2009, and 588.5 billion yuan for 2010.

Fiscal policy:

To stimulate the economy, China shifts from prudent fiscal policy to proactive in the fourth quarter of 2008.

The proactive fiscal policy also involves tax cuts of 550 billion yuan, including a comprehensive reform in value-added taxes, reduction in real estate and securities transaction levies and the canceling of 100 items of administrative fees.

China announced in March last year a fiscal deficit budget of 950 billion yuan for 2009, a record high in six decades. However, the total deficit is still managed to be less than three percent of China's gross domestic product (GDP).

Monetary policy:

To back the investment plans and expand domestic demand, the People's Bank of China, the country's central bank, scrapped lending limits of commercial banks in early November of 2008 to offer more loans to the economy.

The central bank also slashed the benchmark interest rates for five times and the deposit reserve requirement ratio (RRR) for four times in 2008.

China maintained the moderately loose monetary policy in 2009, which spurred a surge in new bank loans -- 9.6 trillion yuan, compared with 4.9 trillion yuan in 2008.

The country decided to continue implementing moderately loose monetary policy in 2010, but it would enhance the focus and flexibility of the policy according to new situations.

The central bank raised the RRR on Jan. 18 and again on Feb. 25 this year.

Support plans for key industries:

Within six weeks since Jan. 14, 2009, China unveiled stimulus plans for 10 industries on top of the 4-trillion-yuan stimulus package. These industries are auto, steel, shipbuilding, textile, machinery manufacturing, electronics and information, light industry, petrochemicals, non-ferrous metals and logistics. 

Source: Xinhua