WHOA!!! China... With $586B to spend?

Discussion in 'Economics' started by scriabinop23, Nov 9, 2008.

  1. Buy commodities now... 6% of GDP!!

    SHANGHAI – China's government announced a two-year stimulus exceeding a half-trillion dollars to offset the impact of slowing global growth and unlock the spending power of its vast population.

    Premier Wen Jiabao's cabinet set plans for 4 trillion yuan, or $586 billion, in spending and stimulus measures through the end of 2010 aimed specifically to target people's livelihood, the official Xinhua News Agency said Sunday night.

    It was unclear how much the plan, which will target 10 areas from rural infrastructure to low-cost housing, represents new spending and how quickly it can stimulate domestic demand.

    The government also will adopt an "active" fiscal policy -- meaning it will spend money and cut taxes -- while the central bank will set a "moderately easy" tone that appears to signal further interest rate cuts and efforts to make banks boost lending, Xinhua said.

    China's economy grew at the slowest rate in five years in the third quarter, slipping to 9% from the year before.

    China has joined international calls to address faltering global business and consumer confidence, announcing plans that President Hu Jintao will visit Washington this week to meet other world leaders, including U.S. President-elect Barack Obama.

    Economists say that while China remains a hopeful source of global growth, its momentum is pulling back more quickly than anticipated. Property prices are under downward pressure, factories are closing as export orders dry up and foreign direct investment is being called into doubt.

    As demand in its major export markets falls, many agree on the need to stimulate spending by China's consumers, unlocking their $4 trillion in savings. A particular concern are the hundreds of millions of people in China's countryside, where the government appears particularly determined to boost spending power and has, for instance, already lifted grain purchase prices.

    In Sunday's statement, the government said that among its earmarks will be money for transportation networks, ecology, technical innovation and post-disaster reconstruction. Few specific details on the spending plans were immediately announced.

    Other measures include a restructuring of value-added taxes that Xinhua said will reduce business taxes by 120 billion yuan annually. The government will also look for banks to boost lending, removing a government-set lending ceiling and encouraging them to offer credit to smaller businesses, rural borrowers, technical innovators and buyout-oriented firms.

    Bold action from Beijing isn't unexpected. The government has in recent months reversed course by slashing interest rates, pouring money into ailing stocks, giving developers leeway to build.

    What had been missing in Beijing's aggressive policy mix so far, according to a report last week by JP Morgan, was a "big announcement."

    Many economists have been looking for Beijing to unveil a big stimulus package similar to the one it relied on during the Asian Financial Crisis more than a decade ago. Then, Beijing issued massive amounts of domestic bonds to pay to extend highways, repair airports and build ports, a program that was deemed a strong success.

    Just a year ago, China had adopted an unprecedented "tight" monetary policy, a step up in its three-year effort to keep the fast-growing economy from barreling out of control because it was expanding too quickly.
  2. this is amazing,

    but at least they are doing it with more than 1.5 trillion in reserves, a current account surplus, and a budget surplus. Other countries should take an example from china and run their country in this way, that way if shit hits the fan you can safely spend money to spur growth rather than spend money and dig yourself deeper in debt.

    while for the US it is everything opposite (huge debt, current account deficit and budget deficit) only difference being US gdp is >> China's

    who thinks the US next stimulus package (rumored to be 400billion) will top china's? (586billion) i think not.
  3. Joab


    I hope your all teaching your children to speak Chinese because they will own the world much sooner then you think.

    The next great super power in the making.

    The only problem I have with this is our roads will be a nightmare to drive on with all the bad drivers. :D :D :D

    Seriously though I like the Chinese culture but why the hell do 80% drive so bad. :confused:
  4. Out of the 4 trillion RMB, around 1 trillion is for Sichuan reconstruction (after the earthquake).

    In China, many bldg and infrastructures hv inferior quality. That is why so many bldg (esp schools) collapsed. 4T is not even enough to rebuild all these inferior structures in entire China.
  5. True, which is why it will all be new construction.
  6. They should focus on water quality, 80% of rivers have raw sewage, following would be construction codes that are actually followed... after that they can take over the world.... I think they got the time frame right for a stimulus package though, about two years would be what I would be thinking it will take.....
  7. So it the sum too small? Is more needed? Seems like big spending to me.
  8. AAA30


    Much better approach then sending everyone a check. The number is hugh no mater if it is enough to bring China's infrastructure up to developed world standards.
  9. jprad


    Funny, I remember hearing the chicken littles screaming that same exact argument 20+ years ago.

    Only difference was it was Japan who was going to eat our lunch back then.

    Only this time's different, is that it?
  10. Morph_an


    Taking into account 1.3 B of the population of China, that amount is not that great. But it's still something eh?
    #10     Nov 10, 2008