Thursday, February 26, 2009

China's economic plan

In addition to my previous blog on China-U.S. relations, David Dollar, a World Bank economist specializing in East Asian economics, provides his policy recommendations for the Chinese government during this economic crisis. Below is a round-up of his main points:
In the Asian crisis of 1997-98, China stimulated its economy with a lot of infrastructure projects aimed at bottlenecks in roads, seaports, airports and power. Now, there are no major bottlenecks in those areas, yet some local governments would love new projects, even if they have little future payoff. So, the challenge is keeping the stimulus program focused on legitimate future needs, not white elephants.

Another concern about the stimulus package is that it aims at limiting the damage in the industrial sectors. Of course, the government wants to avoid allowing those sectors to decline too rapidly. But over time one would want relative decline of industry and a shift in the growth model...

...China enters this crisis in excellent fiscal shape; hence it has huge potential to increase transfers through its minimum income support and other safety nets, build up health and education, and follow through on infrastructure projects. Hence, if growth continues to falter, my advice is, “think big” when it comes to government programs and spending this year...

...A second key task for China is to keep open its trade regime and look for opportunities to liberalize further. China’s merchandise trade is quite open compared to other developing countries, and through its World Trade Organization commitments, the country has taken initial steps to open service markets.
Many countries, particularly developing countries that rely on commodity exports to China will be watching and praying that the Chinese plan works.

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