Home » Economy » China’s Western Push

China’s Western Push

From 2000 to 2009, Chinese government has invested $325 billion in West China, and it promised to invest $101 billion for year 2010 alone. The push westward continues…(WSJ, 07/10).

China's push westward continues. Just don't confuse it with a major new stimulus effort.

Beijing this week announced the country's western region would see $101 billion of investment this year. That has some wondering if China's starting up a new fiscal stimulus, to follow the $586 billion spending plan announced in late 2008. That's inflating expectations too far.

For a start, it's not clear how much of the $101 billion—to be spent on 23 projects from airports to power plants—represents fresh spending. As Capital Economics points out, much of this could simply be a rehash of projects that were included in China's previous stimulus plan.

Moreover, investing in China's western region has been a long-term government project dating from the beginning of this century. From 2000 to 2009 the government announced some $325 billion worth of new investment projects in the west of China as part of a strategy to develop the region. The latest announcement should be seen in that context, rather than evidence China is gearing up for a new stimulus plan, even if this year's spending is the highest in one year in the past decade.

Nonetheless, it's likely there will be more government unveiling of "new" investment in the coming months, triggering talk of a second fiscal stimulus. Such announcements are inevitable in one sense: Plenty of projects begun in the 2009-10 period will need ongoing funds to bring them to completion.

More importantly, despite policy maker efforts to raise the share of household consumption in China's economic mix, government investment is going to remain a key element for some time yet. As UBS economist Tao Wang points out, if China's government pulled back on investment spending in the near future, "infrastructure investment would collapse and overall economic growth could drop sharply."

Further investment spending in China is both a necessity and an inevitability, not a novelty.


Leave a comment

Your email address will not be published.