If?you are well off and have only one child, having another can help stimulate domestic demand during the economic downturn.

China Economic Weekly reported recently that Guan Tongwei, a financial professor from Guangdong Province, claims that allowing financially competent urban families to have a second child can be an effective means to stimulate internal market demand.

This proposal reminds me of Jonathan Swift's modest proposal, though no sarcasm is intended by Guan.

The detachment with which Guan flirted with such trivia as human life casts into relief the perceived sanctity of economic stimulus in these times.

For quite sometime we have been seeing myriad signs of stimulus, bottoming out, and rebound.

"Do you have anything left in your food card? Come, and translate it into unlimited joy of reading" - thus goes an appeal on a poster at the gate of a bookstore on the ground floor of our office building.

But apparently Chinese need little encouragement to consume.

Opposite the bookstore is a bank where a woman was subscribing to a fund. The fund manager asked loudly: "Did you make money on your previous purchase?"

The answer was a resounding "yes," though the manager dismissed the gain as being too modest.

As a matter of fact, I do not need to go to the ground floor for signs of rebound - they can be clearly audible in my office on the 38th floor, in a cacophony of rumbling, clanging, and tut-tut-tut produced by the cranes and bulldozers in a number of nearby construction sites.

There are more solid indicators.

A rumored hike in edible oil (about 10 percent) in Nanjing sent some residents rushing to stockpile it last weekend.

Yes, in November 2007 a run on edible oil in a supermarket in Chongqing led to a fatal stampede, but the correct response to the Nanjing rush should be one of reassurance: rising prices suggest that growth is back on track.

While the rest of the world is steadily tuning down its economic outlook, Chinese economists are concerned that our economy might have been overstimulated.

"Have we overstimulated? It's time to take stock, whether in terms of fiscal or monetary policies," said Ha Jiming, senior economist at China International Capital Corp, during the two-day Lujiazui Forum that ended on Saturday.

Ha pointed to the strong possibility that in 2009 our economy will not bottom out, but he ruled out the possibility and necessity of another round of strong government stimulus, because the market was already awash with money.

Hu Zuliu, chairman of Goldman Sachs China, also expressed his concern during the forum that so far the policy had been targeting short-term rebound, without addressing inherent structural imbalances.

Hu said that since the third quarter last year, official policies no longer target economic restructuring, but lend full support to investment-driven stimulus aimed at generating internal demand.

According to Andy Xie from Rosetta Stone Advisors, the Chinese economy is more dependent on exports than Japan and South Korea, and given the slump in exports, there is little possibility of China regaining growth momentum anytime soon.

It's high time we take a respite and reflect a little on what is actually being stimulated.

Take China's steel industry, which is beset by overproduction and sliding prices in a weak market.

Xu Lejiang, chairman of China's largest steel maker Baosteel Group, predicts that China's steel industry would post a loss for 2009.

Not China

Ironically, while big companies like the Baosteels are forced to reduce overcapacity as a result of the downturn in shipbuilding, auto and home appliances sectors, small steelmakers are revving up their production, as the 4 trillion yuan (US$586 billion) fiscal stimulus has created huge demand for lower quality steel.

Instead of accelerating industrial upgrades - which the sector badly needs - the investment competition triggered by the stimulus is sending wrong signals to steel makers that should be eliminated, exacerbating the oversupplied market.

Given these considerations, I think the government should make an effort not to be too distracted by the lavish praise some Western entities are suddenly in the habit of showering upon China on every conceivable occasion.

Zhu Weiyi, a professor at China Academy of Social Sciences, struck a similar note in a recent article on Southern Weekend.

"Out of despair, some European countries and the United States are pinning their hopes on the Chinese economy, which are not actuated, I am afraid, with the best of intentions," Zhu said.

He questioned, "How can a poor, developing country like China stay the tides of global financial crisis?"

Interestingly, in his diary in 1931, Zheng Xiaoxu cited an American commentary as saying that the capitalist world can pin its hope of recovery on China.

Zheng was the teacher of China's last emperor Aisin-Gioro Pu Yi.

Overestimation can induce complacency, compromising our ability to see deep causes, and to act properly.

The pull to return to the status quo far surpasses the forces to change and reform, anytime, anywhere.

"American indebtedness led to the crisis in the first place, but when consumption flags, the US government is desperate to encourage Americans to spend," Zhu said.

Hence the impossibility of addressing the underlying causes, such as the gaping income disparity and the crisis of values.

"The wealth gap limits mass consumption and distorts the moral code of conduct," Zhu said.

Excessive speculation led to the crisis, but politicians are trying to reactivate the economy by resorting to the old tricks that create the bubbles, which is like drinking poison to slake thirst, according to Zhu.

(Shanghai Daily May 21, 2009)