China doesn’t need to supersize its stimulus package—even if many people had hoped it would. Premier Wen Jiabao told 3,000 lawmakers on Thursday that the 4 trillion renminbi ($585 billion) spending programme remained just that. He also stuck by a forecast of 8% gross domestic product (GDP) growth for 2009. On the first point, his judgement looks good. On the second, probably not.
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The grand stimulus package is still pretty embryonic. Much of the money will go into infrastructure, but there’s no detail on who gets what, or how the lion’s share will be funded. Nor have the potential projects suggested by the provinces—a laundry list of over $18 trillion—been boiled down.
Yet official data suggests that the money being pumped through the economy is already putting some juice back into China’s industrial sector. New orders to the industrial sector rose in January, driven by heavy industry. Growth in bank loans has also shot up. Both look like early signs that the stimulus is stimulating.
China can afford more later, if need be. The package so far will leave a fiscal deficit of under 3% of GDP—high for China, but frugal by today’s international standards. Total government debt as a percentage of GDP sits in the teens—a minimal level. And Beijing can always green-light projects while telling them to find finance on a commercial basis.
The 8% growth, though, looks like pie in the sky. In the fourth quarter of last year, China grew just 6.8%. Even if Beijing prioritises “shovel-ready” projects that can be started right away, it will find it tough to turn things around fast enough to beat the 7.2% economists forecast this year.
Urban legend has it that China faces mass unrest if growth dips below 8%. But really, that growth target isn’t worth pursuing. In this complex economy, there is no single number that fast-tracks social instability. The main thing is to mop up the 20 million economic migrants roaming the land—which the stimulus should do nicely.
Beyond that, Wen has one goal—to keep Chinese living standards increasing. Spend the 4 trillion renminbi well, and the rest of the economy will stimulate itself.