Wrong medicine?

10 November 2008 By Martin Hutchinson

The $586bn plan is skewed towards heavy industry and the public sector. Targeted tax breaks would more directly boost and rebalance the economy. Sure, infrastructure spending is needed. But on this scale it will help China s trading partners and could prove destabilising at home.

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China's State Council authorized RMB4 trillion ($586bn) of spending on infrastructure and social welfare in the next two years, reflecting an active fiscal policy to combat the global economic crisis. The investments, in a 10point programme, will focus on lowincome housing, water, electricity, disaster relief and transport, especially railways. Infrastructure spending in the 200610 Five Year Plan was RMB5.1tr. Value added tax reforms, cutting corporate taxes by RMB120bn, would be included in the programme. According to the People's Daily, the 10 moves will have a positive effect on cement, iron and steel producers.

In 2007, China's major import partners were Japan (14% of imports), South Korea (10.9%), Taiwan (10.5%) United States (7.3% and Germany (4.7%). Imports totaled $905bn, 28% of gross domestic product.

China has consumption taxes on tobacco, alcohol, cosmetics, firecrackers, gasoline, cars and motorcycles. It also has property taxes, and a farmland occupation tax.

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