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China plans “extraordinary measures”

Currencies, Economic growth, Leverage
By Paul Hodges on 02-Feb-2009
Wen Jiabao right.jpg

China faces a difficult outlook, after the collapse of its main export markets in the West.

Interviewed by the Financial Times today, China’s premier, Wen Jiabao, sets out a pragmatic list of “forceful” actions that are now underway. Most are Keynesian measures, aimed at putting money in the pockets of those who are most likely to spend it quickly:

• 74m low-income people have received spending subsidies
• Pensioners of state-owned companies have been given supplements
• 12m teachers have been given salary increases

In addition, Wen is planning to introduce a “fairly comprehensive social safety net”, with further money being spent on medical care. Subsidies for small-engine cars are being introduced, and technology spending is being increased. Plus, of course, $400bn has already been allocated to increased infrastructure spending.

Wen was also relatively outspoken, for a top Chinese official, about the causes of the downturn. Dismissing suggestions that China’s savings had caused the current recession, he noted that “it is completely confusing right and wrong, when those countries that have been overspending, then blame those that lent them money for their spending”.