Business / Opinion

Getting intervention right will take careful targeting

By Mike Bastin (China Daily) Updated: 2014-04-08 07:25

Certainly, anything like the massive stimulus package injected into the Chinese economy in reaction to the global financial crisis is out of the question. Any investment of similar magnitude will doubtless risk worsening public sector debt and may also add to over-capacity.

However, carefully targeted government intervention and investment is most definitely needed in order to maintain a decent level of economic momentum. While GDP always, and always will, grab the headlines, the government should also shine the spotlight on employment levels and opportunities and inflation. Any intervention and investment program should be linked inextricably to the impact on these economic indicators first and foremost.

Getting intervention right will take careful targeting

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So, where and what carefully targeted government investments do we need to see right now? First of all, looking long term and thinking strategically, the Chinese government has to accept the fact that any substantial "trickle-down" effect from China's richest provinces and cities has not happened and will not happen. In so doing, clear options emerge for any short-term tactical government-led initiatives.

Of immediate importance, therefore, are China's poorest geographic regions, provinces and cities, mainly West and Northwest China in particular. These areas will only emerge as significant engines of economic growth with consistent government investment and incentives targeted at all industrial sectors.

For any major economic development to snowball across Western China's further reaches, an initial focus on one major city is required and Lanzhou fits the bill for numerous reasons. In the same way that Shenzhen was selected as the initial torch-bearer of economic emergence, so should Lanzhou be identified as the catalyst to wealth creation across West China.

Short-term initiatives and long-term planning should also include an accelerated program of partial privatization of China's amorphous and unwieldy utility companies. Implementation should start right now with telecommunications being the first guinea pig privatization.

Overall, the Chinese government is quite right not to overreact and adopt a far greater interventionist role at this time. In fact, this managed slowdown does not threaten China's long-term economic growth path but probably ensures far greater likelihood of a more sustainable path in the longer term.

The author is a visiting professor at the University of International Business and Economics in Beijing and a senior lecturer on marketing at Southampton Solent University's School of Business.