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Infrastructure development key to beating recession

By You Nuo (China Daily)
Updated: 2008-12-08 07:32

There is no room for uncertainty. When China is starting its most important economic policy-making process - the annual central economic work conference - you know what it is going to be about. It's the global financial crisis. And what to do, if anything at all, to prevent it from turning into a general recession.

No room for ambiguity either. Top on the to-do list can only be one thing, that is investment in public infrastructure. Ever since the time of John Maynard Keynes, this has become the standard anti-crisis weapon for every government that is able to raise money.

In all likelihood, for the next couple of years, the largest business movement in the world will be in infrastructure development. China and the United States will be two leaders of this movement - be it competition or cooperation or both (I personally prefer a healthy mixture of both).

They have both ready resources and acute demand for some of the world's largest projects. If they can do well, the movement can be joined by more countries - such as India and many other Asian economies - as facilitated by re-prioritized international financial institutions.

Public infrastructure will be the key link, as President-elect Obama told Congressional leaders, in his new economic program. The message was echoed by a governors' conference, reported on National Public Radio, last week, in which much skepticism was aired about the newly-built infrastructure projects and their technologies in the emerging market economies, including some Chinese cities.

But there are only a few good things in a few Chinese cities. Much of the country remains typically Third World, with a demand for many basic services - and you need physical infrastructure to deliver them to the citizens.

Having said this, however, there are still issues to be clarified by the officials in Beijing.

At no other time has China been under so much pressure to change its economy's basic development model which, ever since its opening up in the late 1970s, has focused on export-led manufacturing. It was a right strategy back then and seems rather risky now.

The world market for manufactured goods will probably see a contraction in at least the next few months, as all the cross-ocean shipping companies have indicated in their business reports.

This is a general trend and has little to do with renminbi's exchange value. A devalued renminbi, as Minister of Commerce Chen Deming opined last week, is not going to be used to boost China's exports. It will not do wonders when the general demand is weak.

But this is a rather cruel reality that some coastal provinces would find it too hard to face. For years, they have used so much resources in building their economy, including many government services, on the basis of export-led manufacturing. They have helped China create jobs and earn trade revenues.

But now, when they have run into difficulties, there should also be a national plan to help them adapt to the changing world market situation. This is also to help the central government. For otherwise Beijing would always hear the coastal provinces cry for seemingly better but no longer workable trade incentives.

The key is to change the old model of export-led manufacturing to the kind of manufacturing to aid infrastructure development and related services.

The State-sector infrastructure projects sponsored by the central government, as listed in its newly released 4-trillion yuan economic stimulus package, should generate enough orders to the small- and medium-sized private-sector enterprises in the coastal provinces.

There should be tax incentives for manufacturers to supply for the government listed infrastructure projects, and for those that can meet low-carbon requirements.

In the short run, government procurement programs may also be expanded to benefit the manufacturers of consumer goods - such as by buying uniforms and daily goods for the workers building new railways and airports.

E-mail: younuo@chinadaily.com.cn