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China tries for more than Olympic gold with economic strategy
By Kwang Ryu
Like so many countries around the world, China is responding to the current economic crisis by pumping up its economy with a $586 billion financial stimulus package, an investment that comes quickly on the heels of the us$41 billion China spent on the Beijing Summer Olympics. The planning and execution of both these bouts of big-time spending is very similar – and in both cases there is more at stake than gold medals.
Politically motivated: Both the Olympics and the stimulus package support the long-term policy goals of President Hu Jin-tao’s leadership. For the past five years, Hu and Prime Minister Wen Jibao have been trying to shift the driver of economic growth away from exports to enhancing domestic consumption and boosting rural demands. For the Chinese people, the Olympic Games were a great source of national pride that bolstered domestic support for the national government and its policies. China’s domestic stimulus spending now signals the focus of Hu’s policy on creating jobs and bringing social stability.
Investing in hardware: More than 85 percent of the Olympic budget was spent on infrastructure, energy, transportation and water supply projects. It’s estimated that more than 75 percent of the stimulus money will be spent on low-income housing, rural infrastructure, water, electricity, transportation and rebuilding from several natural disasters.
Gross accounting: One key question around the China’s huge fiscal stimulus is how much of this is new funding. Some estimate that close to 50 percent of the stimulus funding was pre-allocated to recovery efforts after the Sichuan earthquake, building a modern railway system, and building affordable housing for low income families. Similarly, prior to the Olympics, Beijing municipal government had already planned to build additional subway lines and apply stricter rules on air pollution. In both cases, the Chinese government would have made some investments without the stimulus package or the Olympics. The amount of “real” investment involved with the new stimulus package remains to be seen.
Demonstrating global power: By strictly managing all aspects of the Games, including how they were covered by foreign journalists, the Chinese government used the Beijing Olympics to rebrand China’s role on the global stage. It is no surprise China’s stimulus package announcement came on the eve of the G-20 financial ministers’ summit in Brazil, when the whole world was watching.
What does this mean to foreign companies doing business in China?
China’s success with the Olympics is being repeated in the financial realm. If its efforts succeed, China will be a winner in the new economy and wield even greater influence in the new world system. President-elect Obama will have to pick up a phone to check in with China’s president before blocking unwanted Chinese goods and the United States will find itself still buying cheap, low-quality Chinese goods coming out of irresponsible factories.
What China’s investment strategy fails to address is a growing demand for social spending on issues such as education and health care.
Based on my many visits to China in my role as director of the Boston College Center’s China Initiative, I don’t think this is a case of ignorance or error by the Chinese government. They were left out purposely.
So, who’s filling the void in spending on Chinese social issues? How about Apple, which wants to put millions of iPhones in the hands of China’s 1 billion potential consumers? How about Warner Bros., which wants to rent its Hollywood films at less than $1 per movie? How about Google, with its desire to become the home page for 1 billion Chinese Internet users?
China will continue to fuel its growth by going global and improving domestic consumption. But Chinese leaders understand this cannot be achieved without “higher quality” and “domestic innovations” and they know that lagging wealth creation and employment will result in social unrest.
They also know that they can’t do it all. China will rely on the private sector to support social development through transfer of technology, community investments and other evidence of corporate social responsibility.
So if you are going to China with your business, don’t leave home without your CSR programs.
December 4th, 2008 at 8:50 AM
[...] China will rely on the private sector to support social development through transfer of technology, community investments and other evidence of corporate social responsibility. So if you are going to China with your business, … More [...]