China Market Intelligence
China Tackles Economic Crisis
with Fiscal Stimulus, Consumption Plans
A
s the global economic crisis has deepened, the PRC
government has become increasingly concerned
about the impact of the crisis on China’s economy
and has launched various efforts in response.
Central stimulus plan
The centerpiece of China’s response is the massive ¥4
trillion ($585 billion) stimulus plan announced last
November. Stimulus spending will focus on transportation
construction, Sichuan earthquake reconstruction, rural
infrastructure projects, environmental protection, housing
projects, indigenous innovation (China’s strategy to
develop domestic innovative and technological capabilities
over the next decade), and healthcare and education. Each
of these broad categories conforms to a set of policy goals
already outlined in China’s 11th Five-Year Plan
(2006–10). About ¥1.18 trillion ($263 billion) of the
stimulus is slated to come directly from the central
government, while the remaining funds will be provided
by provincial and local governments, state-owned and
private enterprises, and policy and commercial bank loans.
The State Council allocated ¥120 billion ($17.5 billion) of
central government funds for deployment in November
and December 2008 and plans to spread the remaining
stimulus spending over the next few years.
Officials at the PRC National Development and Reform
Commission (NDRC), the primary agency responsible for
approving stimulus package spending, said in January that it
would funnel ¥100 billion ($14.6 billion) of the stimulus
funds into local government projects for implementation
before March, when China’s National People’s Congress
convenes. Though NDRC retains primacy in the initial
approval of stimulus projects, local ministry and provincial
officials will have the final say in project implementation
and execution. In general, projects worth more than ¥30
million ($4.4 million) in funding will need NDRC
approval, while those over ¥200 million ($29.2 million)
require NDRC and State Council approval. Recent
conversations with NDRC suggest that provincial projects
that do not involve national funds will not require NDRC
approval, provided that the projects are not in prohibited or
sensitive industries as described in NDRC’s Approval and
Filing catalogues.
In early February, NDRC announced that it will spend
¥130 billion ($19.0 billion) more on several national
projects that involve public facilities, low-income housing,
infrastructure, health and education, economic
restructuring, and the environment, though no timeframe
12 March–April 2009 chinabusinessreview.com
was given for the spending. NDRC officials have indicated
to the US-China Business Council (USCBC) that this
round of stimulus spending is separate from the ¥100
billion package announced in mid-January but still a part
of the ¥4 trillion announced in November. NDRC will
work with various ministries on the approval and funding
of central-government-sponsored projects and retain its
approval authority over non-national stimulus projects.
Other policies: exports and consumption
Beyond the stimulus package, China has also taken
significant steps to boost the export sector. Most
important, cuts in export value-added tax (VAT) rebates
made in summer 2007 have been reversed and restrictions
on processing trade eased. The renminbi, which had been
steadily appreciating since July 2005, has held fairly steady
since July 2008. The People’s Bank of China has slashed
interest rates, raised lending quotas for banks, and pushed
for more loans to struggling small and medium-sized
enterprises.
In another move to prop up China’s economy, in late
December the State Council issued the Opinion on
Stimulating Circulation and Expanding Consumption.
Drafted mainly by the PRC Ministry of Commerce and
largely a vague restatement of basic principles laid out in
previous announcements, the opinion includes 20 measures
to invigorate consumption. Starting in February, the Home
Electronics to the Countryside program, which provides
cash subsidies of 13 percent for rural residents’ purchases of
home appliances, was expanded to cover the entire nation.
Motorcycles, water heaters, computers, and air conditioners
have joined televisions, refrigerators, washing machines, and
mobile phones on the list of products that may be
subsidized by provincial governments. The opinion also
notes the government will improve the rural logistics
network and set up more rural goods distribution centers.
For urban areas, the opinion contains vague provisions on
improving community services to stimulate consumption
and highlights potential changes to stimulate the auto
sector, which has slowed significantly in recent months.
Industry-specific revitalization plans
As promised in earlier State Council documents, PRC
government agencies drafted revitalization plans for several
key industries. The industries are iron and steel, autos,
shipbuilding, petrochemicals, textiles, light industry,
nonferrous metals, equipment manufacturing, logistics, and
electronics and information technology (IT). Key measures
 China Market Intelligence
and policies in the plans include relieving the tax burden on
enterprises, supporting financial credit development,
launching enterprise-technology-reform projects, encouraging
mergers and acquisitions to improve risk forbearance and
global competitiveness, fully developing rural markets,
expanding exports, and storing energy.
As CBR went to press, China had approved in principle
plans for the industries listed above; a few details follow.
The PRC government also issued plans to invest in rail
construction and energy and environment projects.
■ Steel and autos The State Council’s plans for China’s
steel and auto industries aim to eliminate obsolete
capacity, accelerate innovation, and cut export tariffs.
Some analysts note that the auto plan may favor light,
efficient engines.
■ Shipbuilding The plan to stimulate the shipbuilding
industry urges banks to boost finance for vessel exports,
extends financial support for domestic buyers of
oceangoing ships to 2012, encourages the replacement of
outdated ships, suspends new shipyard construction, and
supports technological renovation and industrial updates.
■ Textiles The State Council in early February announced
increases in the export VAT rebate rate for textile and
garment exports from 14 percent to 15 percent. Actual
implementation dates remain unclear, but moves to boost
textile exports and market share could meet opposition
abroad.
■ Machinery manufacturing The State Council also
approved a plan that grants heavy machinery manufacturers
tax incentives, especially when they engage in research and
development.
■ Electronics and IT According to PRC press reports,
the electronics and IT industry plan, approved in mid-
February, states that China will invest roughly ¥600
billion ($87.7 billion) over three years to promote third-
generation communication services, digital TVs, and next-
generation Internet.
■ Light industry The State Council’s light industry plan
calls for increases in export tax rebates and lending and
other financial support for small and medium-sized light-
industrial companies. It also aims to speed technology
upgrades in certain sectors to improve energy conservation
and environmental protection.
■ Petrochemical industry Press reports indicate that the
government will likely invest ¥100 billion ($14.6 billion)
in petroleum-related project upgrades in 2009 and 2010
and ¥400 billion ($58.5 billion) for construction of 20
new, large petrochemical projects; these amounts were
unconfirmed as CBR went to press.
Foreign company opportunities
NDRC and MOFCOM officials in late January assured
USCBC that foreign companies are welcome to participate
in projects associated with the stimulus but provided no
specifics. Companies should be aware that the majority of
project contracts and licenses will be awarded at the
provincial and municipal level and that opportunities vary
greatly by sector. US companies that specialize in
engineering, design, construction, energy, and other
infrastructure services could see the best opportunities, as
much of the total stimulus package targets infrastructure.
National officials’ growing concern about severe water
shortages in and around Beijing has increased the
likelihood that environmental projects in China’s north—
particularly water treatment plants and irrigation
projects—will be a particularly high priority in the first
half of 2009.
Though China plans to aid various ailing industries with
increased funding for projects, the State Council has made
it clear that the country could also use the economic crisis
as an opportunity to encourage mergers and acquisitions
among domestic enterprises to create more competitive
“national champions.” Foreign companies involved in or
competing with sensitive, nationally controlled sectors,
such as auto manufacturing, shipbuilding, or textiles,
should not be surprised to see more domestic preference in
2009.
USCBC expects stimulus-related announcements to be
released at a steady pace and with varying levels of detail.
The March National People’s Congress will bring
additional focus to China’s economic recovery plans.
This article is adapted from reports that first appeared in China Market
Intelligence, the US-China Business Council’s (USCBC) members-only
newsletter. To find out more about USCBC member company benefits, see
www.uschina.org/benefits.html.
chinabusinessreview.com March–April 2009 13