Our new Marketplace Crash Course is here to help. Sign-up for free, learn at your own pace.
China’s concrete way to boost economy
Share Now on:
TEXT OF STORY
Tess Vigeland: American corporate news wasn’t the only factor weighing on investors today. Disappointment in China seeped into the markets. Rumor had it Chinese leaders would begin today’s annual National People’s Congress with a bang, in the form of an expanded stimulus package. Didn’t happen. From Shanghai, Marketplace’s Scott Tong reports.
SCOTT TONG: Chinese Prime Minister Wen Jiabao opened the party Congress. There was polite clapping. There was a prepared speech. There was zilch about additional stimulus. The prime minister did say that Beijing will do everything it can to meet its goal of 8 percent economic growth this year. That’s pretty ambitious — the IMF thinks the entire world will grow by just half a percent. But ambitious is the point, says Andy Rothman at investment bank CLSA.
ANDY ROTHMAN: The Chinese communist party leadership is trying to do the same thing the Obama administration’s doing, which is to instill confidence that their government is on top of the problem and is taking the right steps to fix it.
The steps Beijing is taking are different from Washington’s. For one, China’s $585 billion package relies largely on bank lending, not government spending. State-owned banks here have healthy balance sheets with little exposure to those subprime loans. And more to the point, they’re state-controlled banks.
ROTHMAN: The Chinese communist party controls every bank in China. So when the party tells bankers to lend, their only question is, how much?
Lend first, ask questions later. That approach has made for record lending in January — 1,000 percent more than in the previous year. Now much of that money will go to pour concrete. China’s economy thrives on building stuff, as opposed to the U.S. which runs on people buying stuff.
Economist Wang Tao is with UBS Securities.
WANG TAO: The U.S. is a more consumption-led economy, so more of the government stimulus is focusing on giving the consumers more money to spend. Whereas China, the focus is much more on investment.
As China invests in new roads and train tracks, it’ll import stuff like bulldozers from the U.S. and iron ore from Australia. A little boost to the world economy. But it won’t help create jobs at home for laid-off Chinese factory workers.
Economist Geng Xiao is with the Brookings Institution.
GENG XIAO: We are talking about 30 million lost jobs for migrant workers, which is 10 times bigger than the unemployment in the U.S.
Xiao expects Chinese job numbers to get worse this spring. And that fear is being heard loud and clear at this party Congress. One top official pleaded with Chinese companies not to lay people off.
In Shanghai, I’m Scott Tong for Marketplace.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.