We have launched E-mail Alert service,subscribers can receive the latest catalogues free of charge

You Are Here: Home > Publications> Articles

A Proactive Fiscal Policy and Its Influence on Economic Performance


Yu Bin & Zhang Liqun

In 2008, the international financial crisis triggered off a world economic recession, and China's economic growth also witnessed a drastic downturn. To address the serious changes in the economic situation, the Central Committee of the Chinese Communist Party and China's State Council were resolute in making decisions and made a significant adjustment of the macroeconomic policies. The macro-regulation was adjusted from being aimed at preventing economic overheating and inflation to being focused on maintaining the economic growth and price control. By the end of 2008, the macro-regulation was again adjusted to being aimed at maintaining the economic growth. The firm and stable fiscal policy and the tight monetary policy were separately adjusted to a proactive fiscal policy and a moderately loose monetary policy. This paper analyzes the main content and the detailed rules of the proactive fiscal policy and its influence on economic performance.

The main content of the proactive fiscal policy includes four aspects. Firstly, to increase infrastructure investment and fuel an expanding investment demand through the increase of financial expenditure. Secondly, to lay emphasis on optimizing the structure of the financial expenditure and to increase investment in public services and build up a permanently effective mechanism for guaranteeing and improving people's livelihood when the scope of financial security is reasonably defined and a strict control is taken over general expenditure. Thirdly, to apply various tax policies to ease the burden on enterprises and residents, to encourage enterprises to conduct technological transformation and to improve the household power of consumption. And fourthly, to deepen the reform of the financial system and improve the system matching the financial capacity of central and local governments to their duties and responsibilities.

I. Increase Financial Input and Expand Investment Demand

To counter the drastic slump of China's foreign export and economic growth resulting from the global financial crisis, in November 2008, the State Council held a meeting targeting the plan on widening domestic demand and promoting the steady and rapid growth of the economy. The policy has been focused on largely increasing the financial expenditures of the government and mounting up the government investment. It has been the most spectacular measure after the implementation of the proactive fiscal policy. The government investment has been aimed at seven aspects. 1. Accelerating the housing construction for low-income families. Emphasis should be laid on intensifying the backing for the construction of low-rent homes, quickening the transformation of the shanty towns, carrying out projects for the settling down of the nomads and increasing the experimental renovations of ramshackle houses in rural areas. 2. Accelerating the construction of the infrastructure facilities in rural areas. Emphasis should be laid on consolidating the construction of methane and drinking water projects as well as highway construction in rural areas, improving the power grids in rural areas, precipitating the construction of such key water conservancy projects as transporting the water from southern areas to northern areas, precipitating the elimination of dangers at reservoirs and conducting reinforcement of the reservoirs in peril, reinforcing the water-saving transformation in large irrigation districts and intensifying the efforts in poverty alleviation development. 3. Accelerating the construction of such key infrastructure facilities as railways, highways and airports. Emphasis should be laid on the construction of a number of special passenger transportation lines, coal transportation passageways and western arterial railway lines, and efforts should be intensified in improving expressway networks,in arranging the construction of arterial and feeder airports in China's central and western regions and in precipitating the transformation of urban power grids. 4. Promoting the health, cultural and educational undertakings. Efforts should be made to strengthen the construction of the health service systems at the grassroots level, to speed up the renovation of teaching buildings in junior middle schools in rural areas of central and western China and to advance the construction of special-education schools and township culture centers in central and western China. 5. Strengthening the construction of the ecological environment. Efforts should be made in accelerating the construction of sewage and waste treatment facilities in cities and towns and emphasis should be laid on the prevention and treatment of water pollution at major river basins. Efforts should also be made to strengthen the construction of projects for protecting key shelter-forests and wildwoods and to give backing for the construction of key energy-saving and emission-reduction projects. 6. Accelerating independent innovation and structural adjustment. Support should be given to the hi-tech industrialization and technical progress in various industries and to the development of the service sector. 7. Accelerating all work with regard to the reconstruction of the earthquake-stricken areas.

According to the preliminary calculation, an investment of about 4 trillion yuan will be needed for the construction of the above-mentioned projects by the end of 2010, of which the investment arranged by the central treasury will amount to 1.18 trillion yuan. To speed up the construction, it was decided at the conference that during the fourth quarter of 2008 an investment of 100 billion yuan would be increased by the central government, and an amount of 20 billion yuan would be arranged ahead of schedule for the reconstruction of the earthquake-hit areas in 2009, which is supposed to drive up local and social investment totaling 400 billion yuan. In terms of the above-mentioned arrangements, the increase of financial investment by the government is focused on the construction of the urban housing projects for low-income families and on the construction of the infrastructure facilities related to agriculture, education, public health and the ecological environment; on the construction of the key infrastructure facilities such as railways, highways and airports; and on the recovery and reconstruction of the earthquake-affected areas.

Of the newly increased 4 trillion yuan of investment, 280 billion yuan will be spent on the construction of the housing projects for low-income families; about 370 billion yuan will be used in the construction of the livelihood projects and infrastructure facilities in rural areas; 1.8 trillion yuan will be for the construction of railways, highways, airports and urban and rural power grids; 40 billion yuan will be invested in health, cultural and educational undertakings; 350 billion yuan will be spent on the protection of the ecological environment; 160 billion yuan will be earmarked for the independent innovation and the structural adjustment, and 1 trillion yuan will be for the recovery and reconstruction of the earthquake-hit areas and for worst-hit areas. All the investment will be centered on the construction of the livelihood projects and the agricultural infrastructure facilities and will be used as investment in health, cultural and educational undertakings and in protection of the ecological environment, independent innovation and structural adjustment. The investment will not form the mass production capacity, to say nothing of "high pollution, high energy consumption and resource-related" investment projects, will not bring about repeated construction or low-level repeated construction. According to the estimation by National Development and Reform Commission, the 4 trillion yuan of investment will in the main step up one percentage point of economic growth each year during 2009-2010.


If you need the full context, please leave a message on the website.