12 Years Later, China Is Still Suffering From Its Five Trillion Yuan Economic Stimulus Plan

June 8, 2021 Updated: June 9, 2021


The U.S. government is now pushing for a new infrastructure plan that starkly resembles Beijing’s 5 trillion yuan rescue plan back in 2009. A significant factor is that mass printing of hard currency plays a key role in both plans. U.S. lawmakers can learn from China’s experience by gaining a deeper understanding of Beijing’s 2009 stimulus plan.

Looking back, Beijing’s 5 trillion yuan (which is about $781 billion today) rescue plan succeeded in preserving employment, but overall it was a failure due to the distortion of the entire Chinese economic structure. The Chinese regime shifted toward a dependency on real estate and restricted the consumption of Chinese citizens. A more disastrous result of the 2009 plan was that it created a massive railroad, highway, and infrastructure excess capacity, which diverted most assets toward real estate, especially in terms of residential housing. As a result of this severe surplus, China needed to find a solution for the excess production capacity and thus created the Belt and Road Initiative (BRI, also known as “One Belt, One Road”). This initiative had limited effects on the economy and caused global backlash, as many BRI projects quietly metamorphosed into “foreign aid” programs.

It’s important to examine the 5 trillion yuan rescue plan and analyze its successes and failures, gains and losses.

Mass Producing Money

Since 2009, the Chinese economy has relied on printing money in order to stimulate growth. After the cash was distributed, most of it went to real estate, while the rest was simply added to the chain of debt.

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Villas of real estate property “Viva Villa” developed by Ping An Real Estate are seen under construction in Xishuangbanna Dai Autonomous Prefecture, Yunnan Province, China, on June 20, 2019. (Lusha Zhang/Reuters)

In 2010, Wu Xiaoling, the former deputy director of the Finance and Economics Committee of the National People’s Congress, said that “in the past 30 years, China has been super-producing money in order to stimulate rapid economic growth.” According to a 2013 article published on Chinese news portal Tencent Finance, China has surpassed Japan, the United States, and European Union countries as the largest “money printing machine” in the world since 2009. In 2012, of the equivalent of 26 trillion yuan (which is about $4.1 trillion today) added to the global currency circulation from all countries, China was responsible for printing almost half of that amount. After balancing the differences in per capita income, estimates have placed China’s monetization as one of the highest in the world.

How much cash did China really print? Let’s look at the following factors. First, China’s currency distribution is executed at a much greater pace compared with the growth rate of their GDP. China’s M2—a measure of the money supply that includes cash, checking deposits, and easily convertible near money—was increasing at an average rate of 18 percent per year from 2002 to 2012, while the average GDP was increasing at a rate of 9.5 percent in the same time period. Second, until the end of 2011, the ratio of China’s M2 and its GDP was 1.89. This indicated that the buying power of the yuan was drastically decreasing and China would have sunken into a prolonged period of high inflation. Under these circumstances, some experts have suggested distributing large denomination banknotes in China in order to facilitate circulation and reduce the cost for money printing. It turned out, however, that Beijing would rather bear the costs of printing low denomination currency than produce larger bills. The Chinese regime wanted to conceal this rampant inflation in order to avoid panic among the people, as many voiced concerns and expressed doubts over the stability of the Chinese economy.

Real Estate Curbs Consumption

Most Chinese people have a limited income, and because they are quite afraid of inflation, Chinese citizens usually find solace in real estate. That is why the residential real estate expenditures have been drastically increasing year by year. A few examples of the expenditures are listed below for those years that have crossed the 100 billion yuan (about $15.7 billion), 1 trillion yuan (about $157 billion), and 10 trillion yuan (about $1.57 trillion) mark.

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From some key data points provided above we can deduce that:

1. The price of housing has been drastically increasing. In 1998, the average price of a house was at 2,062 yuan ($323) per square meter; that value turned into 9,860 yuan ($1,546) in 2020. The 2020 value has increased by 2.6 percent from 2019. In 22 years, China’s real estate price has quadrupled.

2. Residents have little consumption power because most of their money goes to real estate. As of 2020, the average income of urban and rural residents has only increased by around 3.5 percent year-over-year, while the average commodity price has increased by an average of 2.5 percent. Data also shows that consumer expenditures have shrunk by 3.8 percent, which is the first time this has happened since the 1990s, as well as the first time since the founding of the Chinese communist regime.

Estimates have placed the amount spent on real estate at around 12.45 trillion yuan ($1.95 trillion) in 2019, which increased to 13.90 trillion yuan ($2.18 trillion) in 2020. This growth rate of 11.6 percent blatantly shows that the people in the mainland are willing to reduce their everyday expenditures so they can purchase a home.

3. On average, Chinese citizens’ debt levels are quite high and most of the debt comes from real estate acquisitions. According to financial experts, the debt of residents in China has been growing at an unprecedented rate in the past five years between 2016 to 2020. The rate at which private debt was increasing has averaged at 22.2 percent during that period, far surpassing the United States (0.9 percent), Japan (7.2 percent), and Germany (4 percent) in terms of private debt. This shows that the Chinese have a very high mortgage to income ratio in recent years.

Government Revenue Heavily Depends on Real Estate

According to China’s official statistics, the revenue generated by land sales in 2020 was 8.41 trillion yuan ($1.32 trillion) and in the same year, the total national fiscal revenue was at roughly 18 trillion yuan ($2.82 trillion). Land sales accounted for 44 percent of national revenue and 84 percent of local revenue. Under these circumstances, whether it is the central government or the local government, Chinese authorities don’t want to adjust the fundamental economic structure that evidently relies on real estate.

It is also difficult for Beijing to adjust the fundamental economic structure because China’s domestic consumption is diminishing. As a result, there is no point improving the industrial and manufacturing sectors.

I wrote an article a few years ago that analyzed how the Chinese regime controlled real estate prices and activities in order to maintain the bubble. After 2009, as the government needed the revenue, the real estate companies needed the market, and the property owners needed to maintain their wealth, an unofficial “alliance” was established in the 2010s among these interest groups as they all needed this real estate bubble to withstand. This is why China’s real estate market hasn’t crashed yet.

A Prevalent Misconception: China’s Exports ‘Revived’

In 2020, China’s exports have increased, and aside from state-run media, many American broadcasters have said that the Chinese economy can soon compete with that of the United States.

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Workers making medical masks at a factory in Jishou, Hunan Province, China, on Jan. 28, 2021. (STR/AFP via Getty Images)

As for how the American economy will fare, the Biden administration has shown that they are aiming for ideological satisfaction rather than abiding by common market practices. But if we analyze the goods that China exports, we can find that medical supplies, household items, and home offices are the three main categories that drove the exports in 2020. The largest contributors to the increase in exports are the medical supplies and textiles that are essential in producing face masks—both increased by 40.5 percent and 29.2 percent respectively. Other popular exported goods included laptops (used for home offices and homeschooling); and plastic goods in the form of everyday appliances, lamps, furniture, toys, and so on. As this spike in the Chinese export rate is closely associated with the ongoing pandemic, it is certain that the trend won’t continue, especially after the COVID vaccine is widely distributed in mid-2021.

In late March, more than 20 American think tanks, university professors, and former presidential economic advisers went to China to participate in the “China Development Forum 2021.” These institutions and scholars have been the most important advisers in U.S. policy toward China. Several of them revealed at the meeting that the Biden administration will purchase a large amount of goods from China, Japan, and the European Union after the extensive infrastructure plan is executed. This is good news for China.

After World War Two, the Roosevelt administration became synonymous for a deregulated monetary policy, whereby the mass printing of money was justified through reasons such as reducing unemployment and stimulating the economy through financial investments. President Franklin Roosevelt received inspiration as well as praise from economist John Keynes, the creator of Keynesian Economics, for implementing his theory. Starting in the late 1940s and early 1950s, this economic model came to dominate western economies, and although only positive aspects of it were officially mentioned, around 30 percent of economists had strongly opposed it. As of today, the central banks of most countries operate under the Keynesian economic doctrine, and all pursue a liberal monetary policy.

When China initiated its five trillion yuan economic stimulus plan in 2009, the West cheered in unison and remarked that China had saved the global economy during the recession. Despite that, China is still suffering tremendously from the aftermath of its stimulus plan and sees no way out of its warped economic structure. It’s worth learning from China’s mistakes.

He Qinglian is a prominent Chinese author and economist. Currently based in the United States, she authored “China’s Pitfalls,” which concerns corruption in China’s economic reform of the 1990s, and “The Fog of Censorship: Media Control in China,” which addresses the manipulation and restriction of the press. She regularly writes on contemporary Chinese social and economic issues.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

He Qinglian
He Qinglian
He Qinglian is a prominent Chinese author and economist. Currently based in the United States, she authored “China’s Pitfalls,” which concerns corruption in China’s economic reform of the 1990s, and “The Fog of Censorship: Media Control in China,” which addresses the manipulation and restriction of the press. She regularly writes on contemporary Chinese social and economic issues.