This time, the government will also provide policy support to enhance innovation and promote industrial structure upgrading.
Post-quake reconstruction is unique to the new stimulus policy. The government will invest 300 billion yuan in reconstruction projects. Also the current 4 trillion yuan plan contains some detailed measures to increase people's income in rural and urban areas, including raising minimum grain purchase and farm subsidies, increasing subsidies for low-income urban residents and so on.
The government has extended reforms in value-added tax regulations to all industries. Starting from January 1, 2009, the existing production-based VAT regime will be replaced by a consumption-based one, cutting the 2009 tax burden on companies by 120 billion yuan. The government has also enhanced financial support to spur the economy, including increasing lending to small- and medium-sized enterprises.
Compared with the 1997 economic rescue plan, I think the current plan focuses more on people's livelihoods and covers more areas – some projects can stimulate investment and others aim to increase people's income; some are funded by the government and others are supported by banks.
China.org.cn:
How long will it take for the plan to work?
Ma Xiaohe:
As I said, some of the projects can stimulate investment and some aim to increase people's income. These two types of project work differently. If you increase people's income, through minimum grain purchase, farm subsidies and subsidy for low-income residents for example, these policies will increase consumption and have a direct impact on the economy. Investment projects such as infrastructure construction will influence the economy in two ways. Firstly, these projects can boost the development of inter-related industries such as construction materials, iron and steel, and cement. Secondly, 40 percent of the initial investment will itself go into salaries and be consumed, so there will be a direct impact too. Over a period of time the rest of the investment will transform itself into fixed assets, which will then be added to GDP.
China.org.cn:
The current global financial crisis has delivered a serious blow to small- and medium-sized exporters. What are your suggestions to them? What should they do to adapt themselves to changes in the Chinese economy?
Ma Xiaohe:
It's hard to give suggestions that are sure to work. The government has raised tax rebates to help domestic companies experiencing difficulty in raising funds. In the 10 major steps, the government also encourages these companies to upgrade industrial structure by providing policy support to enhance innovation. But exporters do face a major challenge because the global financial crisis has caused a drop in global market demand. Exporters will have to make a huge effort if they want to survive these difficult times.
In my opinion, exporters can take advantage of the current financial crisis and turn it into an opportunity for innovation. For example, a company could look for new market sectors in which its products are unique. However, I don't think it's going to be easy for them because they themselves can do nothing about shrinking demand. So for the time being all they can do is to improve management and product quality and reduce cost. These can be effective ways to attract customers.
China.org.cn:
Could you make a forecast on China's economy in 2009?
Ma Xiaohe:
I think if these ten steps can be carried out, the impact of global economic recession on China will be significantly reduced. China's economic growth, which had dropped from last year's 11.9 percent to 9 percent by Q3 2008, will decrease at a slower pace. Also, China will come out of the phase of economic contraction quicker. Without the stimulus package, it might have taken four or five years for China to recover economic prosperity, but now three years may be enough. That is to say, the contraction period of the economic cycle will be shortened, the expansion stage of a new cycle will start earlier and the Chinese economy will land softly.
China.org.cn:
How will the government supervise the use of funds?
Ma Xiaohe:
The government has put forward relevant procedures to enable project overview. Inspection and supervision teams have been dispatched. I believe these steps will be well-implemented.
(China.org.cn by Yan Pei, December 8, 2008)
