Tuesday 24 March 2009

Stimulus Plan Recovery Looks to Be Short Lived, Jobless

Despite some statistical improvement, China’s overall economy is continuing to decline. With most of the funds from the government’s 4 trillion yuan stimulus package already invested in infrastructure construction and state-owned enterprises, analysts worry that, due to a lack of investment from the public and particularly from local governments, any rebound and creation of new employment may not last long.

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Guanyu said...

Stimulus Plan Recovery Looks to Be Short Lived, Jobless

CSC staff, Shanghai
23 March 2009

Despite some statistical improvement, China’s overall economy is continuing to decline. With most of the funds from the government’s 4 trillion yuan stimulus package already invested in infrastructure construction and state-owned enterprises, analysts worry that, due to a lack of investment from the public and particularly from local governments, any rebound and creation of new employment may not last long.

Fixed asset investment grew 26.5% in February, two percentage points higher than the growth in February, 2008, and investment by state-owned enterprises grew 35.6%, 23.3 percentage points higher. However, other investment grew only 20%, with investment from Hong Kong and Macao showing an increase of 21% and that from the real estate industry only 1%. At the same time, growth of central government projects reached 40.3%, but that of local governments remained flat. Analysts say that local governments have not come up with their expected investments.

Many analysts worry that much of the 4 trillion yuan invested in infrastructure construction may not be productive of new employment. The 760 billion yuan of investment in February was mainly in railway, highway and airport construction, and has little connection with economic rebound.

Also, the government stimulus plan for 10 industries may maintain the called for 8% annual economic growth, but from the long- or even middle-term perspective looks more to contribute to production capacity surpluses.

China’s non-state-owned economy supplies of 80% of the country’s total jobs, and the employment elasticity index of SMEs is greater than that of large enterprises. Some members of the Financial and Economic Committee of the National People’s Congress urge privately-owned SMEs be allowed to participate in the government’s investment projects through transparent and fair bidding, in order to fully realize employment targets.

The College of Economics at Renmin University suggests the government invest more money in improvements to the social security system, such as medical service and employment.

At present the mode for the government’s investment remains unchanged, and the long-term effects of the economic stimulus remain uncertain. Most of the central government and state-owned enterprises investment leave little room for improvement in the investment structure.