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Stimulus can't fuel demand indefinitely

2015-01-12 09:31 Global Times Web Editor: Qin Dexing
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China has reportedly approved 400 infrastructure projects valued at some 10 trillion yuan ($1.6 trillion). Of this number, work on 300 projects will start this year.

Chinese leaders are obviously looking to stimulate growth with projects designed to bolster demand. Observers remain divided though on whether the government is embarking on a full-blown stimulus campaign similar to the one it launched in the wake of the global financial crisis in 2008. However current efforts are labeled, the most important thing now is for authorities to identify the real reasons behind the ongoing slump in demand.

If growth remains dependent on government investment, this would represent a clear and dangerous flaw in the country's economic model. Stimulus can only be effective over the short term.

Government spending should only temporarily augment the role normally played by private capital.

When governments have to keep increasing investment because private capital holders are reluctant to spend, this can lead to a vicious cycle. China would do well to avoid such a harmful pattern.

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