Almost four years after implementation of worldwide economic “stimulus,” global growth remains stalled.
In the U.S., the unemployment rate is still over 8 percent. In the second quarter of 2012, official Chinese GDP growth slipped to 7.6 percent, the lowest in three years.
According to its National Bureau of Statistics, China’s massive stimulus plan in 2008 included a 4 trillion yuan ($585 billion) increase in government spending over two years and a 9 trillion yuan expansion ($1.3 trillion) in bank lending in 2009 alone.
Though Chinese GDP picked up after the stimulus, the life of the average person grew more difficult. In the years after the stimulus, true inflation was high and incomes grew slowly. Housing prices soared due to diversion of bank loans into the property market. In major cities in China, housing prices reached 30 times the average annual income.
The majority of the fiscal stimulus went to infrastructure development, such as building airports and reconstruction in the Sichuan earthquake zone. These government-selected projects did not deliver benefits for most people. For example, the trillion-yuan high-speed railway had a 30 percent occupancy rate on some lines after completion. The world’s longest sea bridge, built in Qingdao, has few users, making it the Chinese version of the “Bridge to Nowhere.”
The 2008–2009 financial crisis was a good opportunity for China to restart structural economic reform. For years, the Chinese government worked to keep wages low to promote exports. Private enterprises struggled to secure credit from state-owned banks and often resorted to costly loans from informal (and even illegal) lenders. Almost all major projects were granted to state-owned enterprises, which had less incentive to be productive because they were backed by a government guarantee. When global demand dropped due to the crisis, income increases for individuals and private businesses would have helped China build domestic consumption while moving away from the state.
Some of these measures were taken, but as the stimulus efforts show, the government primarily resorted to making state-owned enterprises bigger—and ended up making the lives of most people harder.
Lingxiao Ou is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit http://www.heritage.org/about/departments/ylp.cfm.