China’s stimulus package runs the risk of exacerbating problems of overcapacity, the Wall Street Journal reported, citing comments from economists and business figures. The US$585 billion stimulus package could create demand in the short term by boosting construction of infrastructure and public works, but a spike in bank lending and rapid approvals for large industrial projects could add capacity that doesn’t reflect real demand. “China is now already plagued by overcapacity in some industries. To add more investment now, just to get some companies going, might threaten the industrial base years from now,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. Beijing is pushing for consolidation in heavy industries and the removal of outdated construction capacity, but there are doubts as to whether this will eliminate overcapacity. Meanwhile, the State Council’s Development Research Center estimates that stimulus spending may add as much as 1.9 percentage points to economic growth.
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