China’s Stimulus

ThinkProgress:

Word from Prime Minister Wen Jiabao :

The thrust of China’s response to the crisis is to expand domestic demand and stimulate the real economy, strengthen the basis for long-term development and make growth domestically driven. We have implemented a two-year, Rmb4,000bn ($618bn) investment programme covering infrastructure development, economic structural adjustment, improving people’s well-being and protection of the environment. As a result, 10,800 km of railways and about 300,000 km of roads have been built and 210m kW of installed capacity for power generation have been added. We have boosted support for science and technology including by encouraging companies to carry out technological upgrading and innovation. More than Rmb1,000bn have been spent in rebuilding after the Wenchuan earthquake. In the affected areas, quality infrastructure and public facilities were constructed, and 4.83m rural houses and 1.75m urban apartments were rebuilt or reinforced. The quake-hit areas have taken on a new look. We are working to improve the balance between domestic and external demand, with the share of trade surplus in GDP dropping from 7.5 per cent in 2007 to 3.1 in 2010. China’s rapid growth and increase in imports are an engine driving the global recovery.

Now obviously what Wen doesn’t add to that is “and a lot of this new construction is pretty wasteful.” But the reality is that it is. People often say that China has a billion people. But it doesn’t. It has over 1.3 billion people. China is about as close to having a billion residents as the United States is to having eleven residents. Consequently, when you try to implement a very large scale government stimulus package in such a large scale country, you end up with, yes, a lot of waste. Hence the stories of ghost suburbs and so forth that you see in the press. That said, the question of waste ought to be in part a question of what is it that’s being wasted. Is China running out of concrete? Running out of steel? Running out of glass? No. It’s a waste in the sense that, in theory, that manpower and material that went into building it could have been used to build something else.

Compare that to the United States where we’ve done much less in the way of expansionary policy. The result has been much less waste. Instead, we’ve had years of mass unemployment. But that, too, is a waste. It’s millions of people sitting around feeling depressed and demoralized watching their job skills slowly but surely erode. It helps economize on concrete, but at the expense of wasting human potential. I don’t think we came away with the better deal.