Asia Times Online, 21 Nov 2008, Stephen Wong
SHANGHAI - In China, the government's 4 trillion yuan (US$586 billion) economic stimulus package announced last week reminds people of massive state investment in infrastructure projects after the 1997 Asian financial crisis, only this time the scale is much bigger.
Another difference is that a decade ago, the then Chinese premier Zhu Rongji did not announce any overall "stimulus package" but just increased government investment each year during his office term (1998-2003) to offset the negative impact of the financial crisis.
But to repeat what Zhu did on a larger scale may not help the economy attain a more balanced development, as advocated by President Hu Jintao with his concept of "scientific development".
Economists are concerned that the stimulus package or "new deal" will simply follow and even reinforce the old growth mode of relying on government investment. This mode encouraged economic growth after the Asian crisis but its shortfalls are obvious: industries boosted by heavy government investment became overheated, environmental pollution worsened, prices of resources jumped. So much so that Zhu's successor, Wen Jiabao, had to impose macro-economic controls shortly after he took over the reins.
Over the past year, China's economic growth has been powered by fixed-asset investment and exports. What China needs now is a true change of course - long-term sustainable growth supported by expanding domestic consumer spending, analysts say. In this regard, the stimulus plan may not be of help. Instead, it is likely to rely even more heavily on infrastructure investment to sustain growth.
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