China said on Sunday it will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand. This is a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing. A stimulus package estimated at 4 trillion yuan (about 570 billion U.S. dollars) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake. The policies include a comprehensive reform in value-added taxes, which would cut industry costs by 120 billion yuan. - XinhuaDavid Seaton's News Links
Asian markets welcomed news of the stimulus plan. The Japanese Nikkei index rose 5.6 percent in trading early Monday. Stocks in Hong Kong and Shanghai rallied strongly, jumping over 5 percent and lifting share prices that have been depressed for much of the year. (...) The stimulus plan, though driven by domestic concerns, represents a fresh commitment by China to keep from adding to the economic and financial woes of the United States and Europe. It is also likely to cheer foreign investors in China’s economy by ensuring that the country remains a source of growth. New York Times
"He is a very smart fighter; when he's fighting he is thinking all the time. But, all the time he was thinking I was hitting him." Jack Dempsey
While Americans and their western allies were all patting themselves on the back for electing Barack Obama, the Chinese actually took a major step to re-float the world economy. In a sense the Chinese are now holding the key to the US economy.
Sun Tzu must be be proud.
What this means is that in less than a week, it will be to China that world leaders will be looking to when they meet in Washington and not toward the USA. Things need to be done quickly and it would be almost impossible for the US to duplicate the Chinese plan. As the the NYT says:
China’s package is not comparable to fiscal stimulus measures that are being discussed in Washington. In China, much of the capital for infrastructure improvements comes not from central and local governments but from state banks and state-owned companies that are encouraged to expand more rapidly. The plan also differs from the $700 billion financial rescue package approved by Congress, which has helped strengthen bank balance sheets but did not directly mandate new lending or support specific investment projects in the United States. China’s overall government spending remains relatively low as a percentage of economic output compared with the United States and Europe. Yet Beijing maintains far more control over investment trends than Washington does, so it has greater flexibility to increase investment to counter a sharp downturn.Maybe it will be the Chinese that bail out GM. DS
8 comments:
I don't think any of the western 'folk' have a clue. But I agree, the other powers now have major leverage and may lead rather than follow. The West is still more flexible, of course, this is much of what got us here in the first place.
But I don't think Obama will be weak, like say Blair. When Blair had a chance to swap away much of Murdoch's power, he instead took the low road and begged, then rec'd support in all the tabloids. Which in the UK, is important. Now, Murdoch's propagandizing on several continents, thanks to Blair.
Also, unlike Blair, Obama's not phony. Tony didn't travel beyond his roots, either in ideology or intellectual thought leadership, at all. He was rejected by the conservatives, his own, so he sought labor, they accepted him, then he took it far right.
I've hung out at 'Gosford Park' often, w/the toffs, and I also know guys that helped raise money for him for years...both ends of the political sphere now loathe him.
I use Blair as a comparison because so much hope was projected upon him from the beginning and he ended up such a disappointment and the english are trying to compare.
But like you say, we don’t know yet, but I disagree with haste. People WILL have to learn to live differently, and when Obama takes office, he’ll have to deliver the bad news….but his oratory skills are not as vacuous as Blair’s, the more sincere Tony’s tone, the more insincere his actions. They are very different men, both political animals, but different internal engines, Blair reacted, I hope Obama reflects, then takes necessary actions. The people, their culture and their pathologies will drive the collective consciousness.
The Chinese economy is still between a quarter and a fifth the size of the American economy, a fact which leaves me at a loss when I try to imagine how the Chinese should now "hold the key to the US economy."
China is a less developed and growing economy with a lot of savings in a non-democratic country not experiencing a transition of leadership; consequently decisions about government investment can be made with much less deliberation and consensus building.
I cannot agree that China's stimulus package suggests any superiority.
The Chinese pronounce els okay, it's the ars that give them trouble. Flied lice, anyone?
You are right. I have corrected it, it was pretty lame joke anyway.
Anon.
The Chinese are not in debt, they have all the dollars and they are going to spend them or dump them at their will. All the martial arts of Chinese origin teach how the smaller and the weaker can defeat the stronger. I recommend your reading Sun Tzu.
David,
The Chinese simply can't dump their dollars at will without crashing their own economy. China needs the US as an export market every bit as badly as the US needs the Chinese as debtors.
You may not know that back in the 90s when the Chinese moved to a more market based economy, their banks, which had been making loans on the guidance of their central planners were totally insolvent. At some point an understanding was reached; the Chinese would undervalue their currency and export their way out of a catastrophic banking crisis and into prosperity; as a quid pro quo for the G-8 acquiescing to these policies they would buy American debt. There is no such thing as a free lunch.
By the way, the people at Treasury have a long track record of wrong footing Asians accumulating dollars. You may recall that the Japanese bought billions and billions of dollars in the 80s when the exchange rate was 200 to 240 Yen to the Dollar, and then had to repatriate them in the mid 90s when the Yen was at 80 to the Dollar. So they put up to 240 Yen in and got 80 Yen out. Stupid Americans borrowed 240 Yen and only had to pay 80 Yen back. The Yuan will eventually have to be revalued, and this same dynamic will play out.
The pastiche of cliches is unconvincing.
Sun Tsu or just watch the few Bruce Lee films
Of course the Chinese are not going to dump their dollars, unless the USA decided to defend Taiwan or something equally idiotic. And it is a different world today than the 1990s. China is much stronger and the USA is much weaker. The USA didn't depend at all on China then and now it does... everybody does. America's reputation is like Alan Greenspan's. It's a different world.
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