COMMENTARY
Commentary: China Tries to Get the Best of the Slump
May 28, 2009
Christopher Bjorke

In the struggle to hold off the worldwide economic downturn, China has taken big steps, such as its $586 billion stimulus package. But it is also taking a number of smaller initiatives from a toolbox of measures to keep growth from slumping.

A major resource in propping up demand in the region is the Chinese consumer. If the legendary “one billion customers” that have attracted foreign companies could be encouraged to spend, they could make up for the lost demand of Western consumers.

To encourage consumer spending, Beijing is allowing foreign institutions to make certain commercial loans to Chinese citizens. Lenders cannot take deposits or make loans for cars or property, Bloomberg reported, but will be able finance purchases for household appliances and other goods.

The government also is giving consumers more incentives to spend by offering 10 percent subsidies on items such as televisions, computers and air conditioners in certain affluent areas. The plan follows an earlier one aimed at boosting spending in rural areas.

China also hopes to spur activity in the economic sectors controlled by the government. Reforms instituted earlier this year will open industries such as railroads, oil and public utilities to more private investment. The move is made with the goal of reducing inefficiencies fostered by state control.

"The structural problems that have been building up in China’s economy for quite some time have become more acute with domestic growth slowing and the world economy yet to bottom out," stated the National Development and Reform Commission with the announcement of the new rules.

Regulations on outbound investment by Chinese firms are also being tweaked. The State Administration of Foreign Exchange will make it easier for domestic companies to invest overseas, with the idea that the recession is creating opportunities for firms to make strategic purchases while prices are low, boosting Chinese industry over the long term.

Creating opportunities

Like the operator of some complicated machine, Beijing has many levers available to nudge consumers or industry in one direction or the other to keep growth high. But despite its enormous power, the central government also shows some recognition that it needs to give more freedom to companies and citizens to invest, produce and buy the country out of danger.

This could mean more opportunities for foreign investors who are sticking it out in China. The all-important need to boost consumption is empowering people to spend money, making this a potentially lucrative time for foreign firms. China’s efforts to keep growing today are also laying the groundwork for growth tomorrow.

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