Yes, everybody’s confidence seems to be boosted up by the sheer amount of 4 trillion yuan to be injected into China’s economy. Plus the investment from the local governments, the total boost package would probably amounts to 10 trillion yuan, some say.
Well, there has been no detailed and specific plans as to where the huge investment goes. Besides, massive construction projects, into which the money seem to flow, will not help too much with China’s economy.
Over the past decades, the whole China has become a construction site, and no other resources had been so sucked into an industry before. It certainly helped the GDP growth and fattened the wallet of bankers, real estate sharks and tax collectors. However, the whole economy was hijacked by the malignant, overwhelming expansion of the construction boom. Other industries are so dependent on the cement and steel industry or simply withered on the vine. Not even 4 trillion investment today will restore the ‘glory’ of the distorted economic development before the recession.
The right course for China is to transit from an exported oriented economy into a domestic consumer society. But the majority now has less savings and shrunk properties. In simple words: they have no money, and I do not see how the current investment arrangement would benefit them.
Singapore experienced similar recession in 1985, and they even reduced the telephone fees to lubricate the economy.
Here is a simple cure for China’s economy:
- Invest in the areas that directly benefit the mass majority: more hospitals, more schools and more economic housing
- Taxing the rich and cut taxes for the wage earners
- Break the monopolies such as CCTV, China Telecom, national Power grids and suppliers
- Reduce the administrative fees, license fees and surcharges. Many of the services for the public good are even more expensive than those in America — just drive on the highway in these two countries
I don’t see the staggering investment is heading in that direction, so I am pessimistic about the economy in this year.