China's Public Enemy No. 1 How Beijing is Battling the Global Crisis

The West is pinning its hopes on China to revive the global economy. Beijing is orchestrating its efforts to combat the crisis as meticulously as it once planned the country's spectacular economic ascent.


Everything is colored a bright red, from the tent roofs protecting throngs of shoppers from the elements to the banners encouraging them to buy. Wang Shiqin, a 62-year-old farmer, hurried to the market in the early morning hours. Like most shoppers here, he already owns a television set, but now he wants to buy his first refrigerator -- subsidized by the Chinese government.

The mood is a mixture of carnival and rally at the market in Feidong, a city in rural Anhui Province about a three-hour train ride northwest of Shanghai. The vendors are loudly pitching household appliances, especially domestic brands, which benefit from this government campaign to fight the global financial crisis.

The Chinese are among the world's most diligent savers, hoarding almost five times as much of their disposable income in their bank accounts as the Germans do. But now the Communist Party wants to promote collective consumption.

The country's 800 million farmers, in particular, are needed as new customers for China's global factory. The same view is held in the West, where even the tiniest grain of optimism suggesting that the crisis could soon come to an end is eagerly snapped up.

Last week, European Central Bank President Jean-Claude Trichet said cautiously that the global economy is "near a turning point." In a cover story, the German business daily Handelsblatt wrote that the "nosedive of the German economy appears to have been stopped." Germany's export business could be digging itself out of the red, thanks in part to Asia.

But even members of the government in Berlin are unwilling to hazard a prediction as to whether this is truly a trend reversal or merely a flash in the pan. China appears to be primarily responsible for this bit of optimism. The West, for its part, is hoping for an increase in China's interest in its machinery, goods and know-how.

The West hopes that millions of Chinese consumers like farmer Wang will, at least in part, replace consumers in Europe and the United States, who have been buying fewer and fewer goods that are "made in China" since the crisis began. Chinese exports plunged by about 22 percent in April alone.

Massive Funds to Backward Regions

It doesn't take much to convince the Chinese masses to spend their money, as they embark on an enthusiastic shopping spree in Anhui and other provinces -- particularly in the country's relatively backward western regions -- into which Beijing is currently funneling large amounts of government funds.

"Jiadian Xiaxiang," or "Electric Household Appliances for the Villages," is the title of the campaign currently underway in China. The economic stimulus program is straightforward: Buyers must identify themselves as farmers. After purchasing their new television sets, refrigerators, washing machines or mobile phones, the customers receive a 13-percent rebate on the purchase price from their local tax offices.

Beijing is using similar government stimulus programs to boost car buying. A tax imposed on the purchase of certain small cars was cut in half, bringing it to 5 percent. The government is spending about €560 million ($755 million) in the hope of stimulating sales of vehicles in rural areas. And it seems to be working. In March alone, the Chinese bought more than 770,000 new cars, a 27-percent rise over the previous month and a new record monthly sales figure.

The stimulus programs recently helped China overtake the United States as the world's largest automobile market. The government stimulus programs, financed with the help of its massive currency reserves, could also benefit the West.

Hardly any other country is pumping money as enthusiastically into the tired economic cycle, and almost nowhere else is the government intervening as rigorously and deeply in the market as in the People's Republic.

China was one of the first countries to announce an economic stimulus program. In November 2008 the government in Beijing launched a two-year plan to inject 4 trillion yuan (about €450 billion, or $608 billion) into the economy. This is about seven times as much as the German government plans to invest in its economy.

Since the crisis began, Beijing has launched new infrastructure projects practically at the press of a button. Some projects had been planned for a long time, while others were completely new. They include the paving or repair of 300,000 kilometers (186,000 miles) of roads, as well as an investment of €68 billion ($92 billion) in new railroad lines, or about twice as much as in the previous year.

Last year, Beijing put many projects on hold, partly to reduce pollution during the Olympic Games and partly to cool what was then an overheated economy. As part of this strategy, China's central bank increased interest rates six times before the crisis, but then it frantically reversed course and reduced rates five times in a row. Now Beijing's economic planners are stepping on the gas once again, in all sectors of the economy.

Investors at the Shanghai Stock Exchange.

Investors at the Shanghai Stock Exchange.

In light of the crisis, the government and the Communist Party are quickly scaling down considerations of environmental protection and sustainability, which had been raised increasingly in recent years both abroad and in China. In only two days, the country's Environment Ministry hastily approved 90 projects worth a total of about 240 billion yuan (€27 billion, or $36 billion), including power plants, aluminum smelters, cement factories and steel mills. This accelerated approval process is dubbed, with absolutely no irony, "Green Passage."

China's communists are suddenly in their element once again. They are well used to government-run campaigns, going back to when then-Chairman Mao Zedong invoked the ill-fated "Great Leap Forward" in the 1950s and later launched the Cultural Revolution.

Sitting in the Same Leaky Boat

Nowadays, the party's Public Enemy No. 1 is the global crisis, which is mainly spilling over from the United States, Beijing's important export market. Beijing is also worried about its financial investments in the US. With about one third of its $1.9 trillion (€1.4 trillion) in foreign currency reserves invested in US treasury bonds, China is the Western superpower's biggest creditor. In other words, the Chinese and the Americans are essentially sitting in the same leaky boat.

To protect their borrowers from collapse, the Chinese have hardly any choice but to continue buying up American treasury bonds. Nevertheless, Beijing is also taking advantage of the crisis to portray itself as an alternative to the United States and a future superpower. It is gratifying for the Chinese leadership to look on as the West reaches for solutions that smack of state capitalism.

China's leaders stand a good chance of winning this global competition, at least in the short term. After all, the planned market economy is their own turf. Furthermore, the Communist Party has no democratically elected parliament to worry about, one that could seek to influence its "market economy with Chinese characteristics." And they can practically order their state-owned banks to issue loans to companies, many of which are also state-owned.

In March alone, Chinese banks increased the volume of loans to companies by the equivalent of €216 billion ($292 billion). As a result, investments in factories and real estate in urban areas rose by more than 30 percent from January to April.


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