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China stimulus relies on motivating thrifty public
2008-11-13
BEIJING - China's multibillion-dollar plan to revive sputtering economic growth depends on getting thrifty consumers like Wang, a 22-year-old security guard at a Beijing office building, to get out and spend. And his dilemma illustrates the challenge Beijing faces with a poor majority who have missed out on China's economic boom and families who save aggressively because the government gives little help to the sick, jobless and retired. "It's not that I don't want to spend. I just can't afford to," said Wang, who would give only his surname. Wang, who saves 30 percent to 40 percent of his income, said he didn't hesitate to donate after China's devastating May earthquake. "But if I spend more this month, then how about next month?" The package unveiled Sunday promises to inject money into the economy with extra spending over the next two years on airports, highways and other construction, tax cuts and aid to the poor. But it says the real goal is to channel money into shoppers' pockets and encourage them to spend, reducing China's reliance on exports and insulating it from the global downturn. It is a goal that Beijing has pursued repeatedly over the past decade, with limited success. Analysts say consumer spending is more effective at producing economic activity than any government action. But efforts to raise consumption in China have struggled because many families still have little to spend and most save 20 percent or more of their incomes to pay for health care and retirement. The key will be easing the public's worries by creating a safety net of health insurance, pensions and unemployment benefits, especially in the poor countryside, said Frank F.X. Gong, chief Asia economist for JP Morgan Chase & Co. "The quick fix is infrastructure spending, building up railroads and other things," Gong said. "But then the key thing is to stimulate consumption by building up the necessary social infrastructure. I would say that's the more important job to do." The package's 10-point list of initiatives includes spending more on aid to farmers and the poor. But it gives no details or financial figures. "They do realize the problem, but I think we need to see the detailed action plan, each step, what they will be doing and how much money they will put into it," Gong said. On Saturday, President Hu Jintao meets world leaders in Washington to discuss a response to the global financial crisis. He is expected to come under pressure to contribute to a bailout fund but Chinese officials say the most important thing Beijing can do is to keep its own economy sound. The government's urgency about reviving growth has mounted as data pour in showing the economy weakening faster than expected. On Thursday, the government said growth in industrial production in October fell to its lowest level since 2001. Output grew by 8.2 percent, down from September's 11.4 percent rate. That was a bigger, faster decline than any during the Asian financial crisis a decade ago, said a report by Citigroup economist Ken Peng. "The shortfalls in both domestic and external demand place a heavy burden on the state to drive growth next year," Peng said. Economic growth in the last quarter fell to 9 percent -- still the strongest of any major country but down from last year's 11.9 percent expansion. That has raised government alarm over the threat of job losses and possible unrest. Retail sales rose by 22 percent in October from the year-earlier period. But consumer spending is still a small share of the economy. And public unease about slowing economic growth and possible job losses appears to be denting the willingness to spend. The October retail sales growth was down from September's 23.2 percent rate. "I think I will save a little bit more and spend a little bit more wisely. Yes, I am a bit worried about the future," said Duan, a 32-year-old industrial designer in Beijing who would give only his surname. "Of course, the government actions made us feel some relief. But it takes time to see the effect. I'll still buy daily necessities but will spend less on unnecessary products." Duan said changes in unemployment insurance and pensions might help. "I think if the unemployment insurance situation changes, I'll spend a bit more," he said. "My colleagues and I pay a lot for insurance each year, but we will get back very little money when we are old." The government has succeeded with some earlier initiatives to motivate consumers. After the 1997 Asian crisis, then-Premier Zhu Rongji pumped money into the economy by launching a highway building program. Coupled with rising incomes, the vast stretches of new roads helped to ignite auto sales. China's auto market is now the world's third-largest after the United States and Japan. ___ Associated Press researcher Bonnie Cao in Beijing contributed to this report.
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