China $A872 billion two year stimulus packages casts the Rudd government’s relatively small monster $10.4 package in a whole new light. Critics of the Australian package would have us believe it is wrong, wasteful, and using up the surplus: China’s shows that it is prepared to do precisely that with no half measures.
Both packages are in keeping with last week’s call from the International Monetary Fund for economies to use fiscal stimulus to help their economies weather the slowing global economy.
Whereas our stimulus is equal to around 0.9% of Gross Domestic Product, China’s is close to 20% of its 2007 GDP. The US has already tried a stimulus tax rebate earlier this year that was equal to around 1% of GDP. It has come and gone and only helped delay the onset of the looming bitter recession. China and Australia are launching their packages while the economies are still growing: at a slowing pace, but there’s still growth in both systems.
In its latest forecast for world economic growth, the IMF sharply revised its growth projections downward, saying that “global activity is slowing quickly.”
“Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth,” the outlook, published ahead of meetings of the Group of Twenty industrial and emerging economies in Washington this week.
China announced its 4 trillion Yuan ($US586 billion, $A872 billion) stimulus package last night in a series of statements on official websites and in the official media.
The money will be spent over the next two years, with $US14 billion being injected this quarter. The huge size of the package is a sign of the desperation in the Chinese Government about the impact of the global slowdown on the country’s economy. China’s economic growth has slowed to around 9%-10% from 11.9% in 2007 and more than 12% in the middle of last year.
The International Monetary Fund last week forecast that China’s growth would slow from more than 9% this year to 8.5% in 2009, a fall of 0.8% on its October forecast and a sign that the Chinese economy looks like its slowing faster than thought.
The package is equal to almost 20% China’s 2007 gross domestic product and was announced by the State Council on its website. Analysts will be watching today to see if the package boost the country’s stockmarkets. The CSI 300 Index, which tracks stocks on the Shanghai and Shenzhen exchanges, is down 69% this year so far, the worst in the region.
The announcement came as a meeting of Group of 20 finance ministers in Brazil (China is a member), issued a joint statement saying they are ready to act “urgently” to tackle the economic slump.”
Bloomberg reported the G-20 finance ministers issued a statement saying their countries are prepared to act “urgently” to bolster growth and called on governments to cut interest rates and raise spending as the world’s leading industrialized economies battle the threat of a recession.
“We stand ready to urgently take forward work and actions agreed by our leaders to restore and maintain financial stability and support global growth,” the group said in the statement released today following a meeting in Sao Paulo. “Countries must use all their policy flexibility, consistent with their circumstances, to support sustainable growth.”
Those measures include “monetary and fiscal policy,” it said in an echo of the IMF statement last week.
Taiwan, which has China as its largest trading partner, late Sunday cut interest rates for the fourth time in two months. The Federal Reserve, the European Central Bank, the Bank of England, the Swiss National bank, Sweden, Australia and the Bank of Japan have all lowered their benchmark rates in the last two weeks.
So has the People’s Bank of China, the country’s central bank, which has cut rates three times in two months.
Bloomberg reported China’s State Council in its statement as saying: “Over the past two months, the global financial crisis has been intensifying daily. In expanding investment, we must be fast and heavy- handed.”
100 billion Yuan (More than $US14 billion) will be spent this quarter and will go on low-rent housing, rural infrastructure, as well as roads, railways and airports.
The government will look to boost investment by allowing tax deductions for the purchases of fixed assets such as machinery to stimulate investment. Bloomberg said that would cost an estimated 120 billion Yuan.
Grain purchase prices and subsidies for farmers will be raised, as will allowances for low-income urban households.
The government has also ended loan quotas to help boost lending to small businesses.