China on Sunday announced a massive $586 billion stimulus package aimed at boosting domestic spending over the next two years in its most aggressive response so far to the spreading global financial crisis.
HONG KONG — China on Sunday announced a massive $586 billion stimulus package aimed at boosting domestic spending over the next two years in its most aggressive response so far to the spreading global financial crisis.
In a decision announced by the State Council — following a meeting chaired by Premier Wen Jiabao — China said it will ease credit conditions, slash taxes and launch an infrastructure spending program aimed at offsetting the impact of the crisis, which has begun to affect China's export-driven economy.
The package will finance programs in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters including the Sichuan earthquake, the official New China News Agency said.
Spending will be increased for new railways, roads, airports and also on health and education, officials said. Some of the funds will be raised from the private sector, but the announcement did not explain how. It was unclear how many of the infrastructure projects were already in the works.
Taken together, the moves were described by the news agency as a shift long advocated by economic analysts "and by some within the government."
China has resisted moving aggressively until now because it has plenty of domestic problems, including stock market and housing market slumps and a growing wealth gap that has helped fuel rural protests. Economic growth slowed to 9 percent in the third quarter, the lowest level in five years and well behind last year's 11.9 percent.
Leaders are under enormous pressure to maintain growth in order to provide jobs for millions of migrant workers and others who have come to depend on China's rising incomes. State media reports have said China cannot be the savior for Western countries who are suffering in the current financial crisis.
"The leadership here is still reluctant to move aggressively, lest it be accused of not attending to matters here and simply following the lead of more powerful countries," a Beijing-based political analyst, Russell Leigh Moses, said last week. "Beijing wants to look responsible internationally, but it is also terrified of seeming weak domestically."
But as factory closures and unemployment mount, China has now decided to adopt "active fiscal policy and moderately easy monetary policies," the State Council said.
"With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro-economic policies to deal with the complex and changing situation," a statement from the meeting said.
Officials will also adjust value-added taxes, which would cut industry costs by $18 billion, the news agency reported.
Certain credit limits for commercial banks will also be eliminated to free up more financing for important projects and rural development, it said.