Stable Growth Does Not Need Subsidies

Monday, December 1, 2008 15:49
Posted in category Going to Market, The Big Picture
Comments Off on Stable Growth Does Not Need Subsidies

With many looking to China to buy up demand that has fallen off, I thought I would highlight one of the recent articles that I think frames some of the poor decisions that are being made in the name of growth:

Farmers in 10 more provinces and cities can buy household appliances and get government subsidy from today on, the Ministry of Finance and other ministries said on Sunday.

The campaign, under which farmers can buy the designated appliances and receive a 13 percent subsidy from government, first started on December 1, 2007, covering four provinces and cities – Shandong, Henan, Sichuan provinces and Qingdao city.

Why does China need to subsidize the consumption of these products?  simple… keep people employed

China is now the largest manufacturer and exporter of color TV sets, refrigerators, washing machines and cell phones. The campaign is expected to digest the excess production capacity of Chinese household appliances and benefit its upstream industries like iron and steel, plastic and nonferrous metal melting, industry analysts say.

Call me crazy, but this is a policy about as poor as the Bush policy giving everyone 300 USD.  It is not only not sustainable, it will in the end potentially cost China in a number of ways that will only be more expensive than had they simply allowed the capactity to fall off and take care of those employees.

So, if your firm employees a large number of people, perhaps you too can convince the good folks at NDRC that a subsidy will save them as well.

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