While global leaders are discussing a new Bretton Woods order, Premier Wen Jiabao is busy figuring out how to boost growth in China amid the global financial chaos. Growth forecasts have all dropped. and China is particularly sensitive to this. It has been accepted for some time that if gross domestic product growth dropped below 8 per cent a year, jobless figures would rise and, with them, social unrest.
Forecasts for next year show GDP growth dipping below 8 per cent. Some forecast 6 per cent, while some pessimists within the government put it as low as 5 per cent. With factories closing across southern China and workers being laid off, the government is concerned about social stability.
Bao zengjiang, or 'safeguard growth', has been a slogan but it is now evolving into a potential political movement. Last month, the State Council approved its own rescue plan - a blind copy of the one US Treasury Secretary Henry Paulson proposed.
It is the old formula from premier Zhu Rongji's era - spend money on infrastructure and get people back in work. He was, after all, Mr Wen's mentor. The difference is that when Mr Zhu put the programme into action, in the 1990s, China desperately needed the infrastructure. Now, it is in oversupply. This is where part of the problem lies; China is reinvesting in the same type of projects that were built more than a decade ago.
From 2003, the central government put in place macro controls to cap growth. Large infrastructure project approvals were put on hold by the National Development and Reform Commission (NDRC). Now, these controls are being rolled back to maintain growth. So will this hyperspending on infrastructure lift China out of potential financial chaos, or throw the nation into turmoil?
Much of the 4 trillion yuan (HK$4.54 trillion) rescue package will be spent on infrastructure. But, unlike the good old socialist days, when provinces had to apply to the central government for financing, in this case they are applying to receive permission to spend their own money.
