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Will China's Continued Big Spending Lift its Economy?

A construction area in Beijing is partly hidden by a billboard showing a view of many completed buildings.
A construction area in Beijing is partly hidden by a billboard showing a view of many completed buildings.
Is China Continuing Big Spending to Lift Its Economy?
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From VOA Learning English, this is the Economics Report.

Chinese officials have predicted lower economic growth again this year. They say that huge government spending programs are coming to a close.

Instead, officials say they are seeking what they call “higher quality” but more modest growth. The goal is to increase domestic consumption and grow the economy in a more balanced way.

Last week, Chinese Premier Li Keqiang reinforced this opinion when he announced a target growth rate of seven percent for 2015. That is well below the Chinese economy’s average over the last 20 years.

However, there are signs that the government has not yet ended its big spending programs. Li Keqiang announced a 13 percent increase in fixed asset investments, things like buildings and machinery. The premier also said there would be new spending in energy, railways, water management and housing.

Some economists believe this spending will be greater than needed to reach the government’s growth target. Shen Jianguang is chief Asia economist at Mizuho Securities Asia in Hong Kong. He calls the additional investments a “silent stimulus plan.”

In January, Li Keqiang promised to create 10 million new jobs in 2015, partly through investment in building projects.

The new spending program is less than the stimulus plan China put in place during the world financial crisis. In 2008, China announced a spending package of $570 billion. This year, however, Mr. Li has set aside $260 billion for spending in infrastructure and parts of the economy.

Yet the spending increase does nothing to increase personal buying in China or create demand for goods and services.

Recently, a professor at Renmin University spoke to Chinese state-run broadcaster CCTV. Tao Ran said that consumption levels are much less than what is needed to guarantee steady growth. Spending by the public is estimated at just about 40 percent of the economy while spending by government agencies makes up the rest.

The government is borrowing money to pay for new projects. Finance Minister Lou Jiwei said in a news conference that deficit spending will be about 2.7 percent of the gross domestic product. That is the value of all goods and services produced by the economy in one year. It is an increase over last year and almost as much as during the financial crisis year of 2009.

China’s debt has increased four times since 2007. The McKinsey Global Institute estimated in February that total debt in China was valued at 282 percent of the economy. That includes government, corporate and household debt. The same report estimates U.S. debt to be 269 percent of GDP.

China’s Ministry of Finance had been limiting spending to cool the economy. But Mr. Shen says the Finance Ministry appears to be changing that policy.

China’s local governments hold large amounts of debt and that has hurt their ability to invest in new infrastructure. Yin Zhongqing, deputy director of the Finance and Economic committee of the National People’s Congress, spoke to reporters recently. He said the central government would offer about $160 billion in low-interest bonds to replace existing debt owed by local governments.

And that's the Economics Report for VOA Learning English. I’m Mario Ritter.

Saibal Dasgupta reported this story for VOA from Beijing, China. Mario Ritter wrote it for Learning English. Caty Weaver was the editor.


Words in This Story

domestic consumption n. products and services bought and used within the country in which they are produced

average n. a number that is calculated by adding quantities together and then dividing the total by the number of quantities

asset n. a valuable person or thing

infrastructure package n. a group of related things that go together

infrastructure n. the basic equipment and structures (such as roads and bridges) that are needed for a country, region, or organization to operate