|China’s stimulus package, announced this week, focuses on more than just building up the industrial and export capacity. Some investments will also be in housing, schools, and health facilities.|
China announced a massive stimulus package of 4 trillion Yuan (US$570 billion) this week, to aid its ailing economy. The move was quickly welcomed by World Bank President Robert Zoellick: "China is well positioned given its current account surplus and budget position to have fiscal expansion," said the World Bank chief at a news conference. "I am delighted that China decided not only to undertake these steps, but to announce it before the G20 summit," he added.
Basically, I think that the package is very good. It is not as big as it looks at first glance, but then the economy is not as bad as many people think. Real retail sales for October came in at 17 percent growth rate, down trivially from 18 percent in September. Exports in October were up 19.2 percent over the year before. There is definitely evidence of a slowing economy, but nothing too dramatic has happened so far. Worrying signs, such as a sharp drop in growth of electricity demand in October, suggest that heavy industry is slowing. And imports for processing have slowed to a 2-3 percent growth rate, indicating that processing exports will slow down sharply. We have said for some time that China needed to be ready with a stimulus package toward the end of 2008 as global conditions would likely lead to a slowdown, and that time has come. I see the current move as precautionary, in light of some worrisome signals, rather than as reactive to a highly deteriorated situation (as suggested in some of the Western press coverage).