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The Results Are In: Chinese Stimulus Fails
Posted By Lingxiao Ou On August 10, 2012 @ 1:00 pm In International | Comments Disabled
Almost four years after implementation of worldwide economic “stimulus,” global growth remains stalled.
In the U.S., the unemployment rate is still over 8 percent . In the second quarter of 2012, official Chinese GDP growth slipped to 7.6 percent , the lowest in three years.
According to its National Bureau of Statistics , China’s massive stimulus plan in 2008 included a 4 trillion yuan ($585 billion) increase in government spending over two years and a 9 trillion yuan expansion ($1.3 trillion) in bank lending in 2009 alone.
Though Chinese GDP  picked up after the stimulus, the life of the average person grew more difficult. In the years after the stimulus, true inflation was high  and incomes grew slowly . Housing prices soared due to diversion of bank loans into the property market. In major cities in China, housing prices reached 30 times the average annual income .
The majority of the fiscal stimulus  went to infrastructure development, such as building airports and reconstruction in the Sichuan earthquake zone. These government-selected projects did not deliver benefits for most people. For example, the trillion-yuan high-speed railway had a 30 percent occupancy rate  on some lines after completion. The world’s longest sea bridge, built in Qingdao , has few users, making it the Chinese version of the “Bridge to Nowhere.”
The 2008–2009 financial crisis was a good opportunity for China to restart structural economic reform. For years, the Chinese government worked to keep wages low to promote exports . Private enterprises struggled to secure credit from state-owned banks  and often resorted to costly loans from informal (and even illegal) lenders . Almost all major projects were granted to state-owned enterprises , which had less incentive to be productive because they were backed by a government guarantee. When global demand dropped due to the crisis, income increases for individuals and private businesses would have helped China build domestic consumption while moving away from the state.
Some of these measures were taken, but as the stimulus efforts show, the government primarily resorted to making state-owned enterprises bigger—and ended up making the lives of most people harder.
Lingxiao Ou is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit http://www.heritage.org/about/departments/ylp.cfm .
Article printed from The Foundry: Conservative Policy News Blog from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2012/08/10/the-results-are-in-chinese-stimulus-fails/
URLs in this post:
 the unemployment rate is still over 8 percent: http://www.usatoday.com/money/economy/employment/story/2012-07-05/employment-report-june/56056454/1
 official Chinese GDP growth slipped to 7.6 percent: http://online.wsj.com/article/SB10001424052702303740704577523202849328184.html
 National Bureau of Statistics: http://www.stats.gov.cn/english/
 Chinese GDP: http://www.heritage.org/index/country/china
 true inflation was high: http://www.ft.com/intl/cms/s/0/693daad2-aa1d-11e0-958c-00144feabdc0.html#axzz22CxhXaj9
 incomes grew slowly: http://english.peopledaily.com.cn/90001/90780/7437630.html
 housing prices reached 30 times the average annual income: http://www.ft.com/intl/cms/s/0/6b521d4e-2196-11e1-a1d8-00144feabdc0.html#axzz22CxhXaj9
 the fiscal stimulus: http://blogs.wsj.com/chinarealtime/2009/05/22/spending-the-stimulus-where-chinas-money-is-going/
 high-speed railway had a 30 percent occupancy rate: http://www.globaltimes.cn/NEWS/tabid/99/ID/668887/High-speed-railway-sees-high-vacancy-rate.aspx
 built in Qingdao: http://www.ft.com/intl/cms/s/0/4f232cdc-cf45-11e1-bfd9-00144feabdc0.html#axzz21yJlACkl
 keep wages low to promote exports: http://blogs.wsj.com/chinarealtime/2011/09/03/chinas-low-wage-export-engine-starts-to-sputter/
 struggled to secure credit from state-owned banks: http://www.forbes.com/forbes/2009/0713/state-owned-enterprises-airlines-chinas-soes.html
 often resorted to costly loans from informal (and even illegal) lenders: http://online.wsj.com/article/BT-CO-20120516-720027.html
 to state-owned enterprises: http://www.economist.com/node/21538159
 http://www.heritage.org/about/departments/ylp.cfm: http://www.heritage.org/about/departments/ylp.cfm
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