Stimulus Package Leads to Encouraging Signs From Consumers, Manufacturers, and Stocks
Interesting economic news coming out of China this week. It looks like the country’s economic stimulus plan has already started to effect positive developments in industrial output and bank lending. Although this does not mean that China’s economy is out of the woods just yet, naturally, it is a good sign that measures taken to combat the global recession are helping the situation.
As Reuters reports today,
China’s economy is in a better shape than expected with March industrial output growth exceeding forecasts, but it still faces big challenges, Premier Wen Jiabao said on Saturday.
Wen, speaking on the day when the central bank reported a record rise in new lending last month, said industrial output growth picked up to 8.3 percent in March from a record low of 3.8 percent in the first two months of the year.
Banks extended 1.89 trillion yuan ($276.6 billion) in local currency-denominated loans in March, bringing the total for the first quarter to 4.58 trillion yuan — nearing the government’s full-year target of at least 5 trillion yuan.
Analysts saw the lending figures as a sign that Beijing’s moves to boost domestic demand were working, but they also cautioned against jumping to the conclusion that a rebound was just round the corner.
As the article says, economists and analysts are cautiously optimistic that measures taken to boost output as well as lending and consumer demand will prove the catalyst to help drive additional economic growth and consumer spending in China, which would help the broader global economy immensely and, hopefully, prove an important part of the global economic recovery.
I think these figures are important because they indicate that despite the dour predictions of some economists about both China’s economy and the global economy, growth (even growth significantly lower than in recent years) will still mean that business opportunity exists in the Chinese market. As some see it, 2009 will be a critical year for China’s economy, as the events of 2008 proved that basing a major economy on exports alone — and cheap exports at that — is not a sustainable model for regular growth. You have to boost consumer spending and, by extension, develop the service sector or else you will be too vulnerable to weaknesses in the global economy (as we have seen). Some bloggers see cause for cautious optimism in China’s massive stimulus plan:
How will China fare in 2009 in the midst of the current economic downturn? Experts believe that China’s $586 billion stimulus package will help offset unemployment resulting from decreased exports and boost employment levels with the increased spending on infrastructure. Early estimates project that China’s stimulus package will create more than 40 million new jobs in the next two years. The strength of the consumer in China will also help the service sector to expand. This growth in the service sector may thus stimulate even more consumer spending, which has historically been a leading driver of China’s economic growth.
China ranks among the world’s largest trading nations and a major importer and exporter of goods and services. It has become the world’s second largest recipient of Foreign Direct Investment (FDI) with more than $92 billion recorded at the end of 2008 while its GDP growth came in at an impressive 9%, according to the National Bureau of Statistics, after several years of averaging in the 10% range. Are there still business opportunities in China? There certainly are.
I think the serious re-think about China’s dependance on both imports and exports could be a good thing in the long run for Chinese and non-Chinese consumers and businesses alike (aside for, I guess, exporters of cheap plastic gadgets), since a thriving Chinese consumer class who is more willing to spend money on services and goods, especially imports, leads to more fluid trade and less susceptibility in China to global fluctuations. Basically, it improves trade and consumption stability. Traditionally, Chinese consumers will, at the first sign of major economic trouble, “shut down,” severely cutting down their spending and saving as much as possible — this is a rational response, of course, but I would posit that Chinese consumers (and Asian consumers, by extension) are willing to cut down on spending far more than western consumers. It can be argued that this is a cultural particularity that has existed in China for centuries.
So, in short, it is reasonable to be tentatively positive about business, trade, and economic growth in China, as consumer markets develop and stimulus spending goes to infrastructure projects across the country. A Chinese consumer base that is willing to spend money has a positive effect on the global economy, not just China’s. And recent stock showings in Shanghai indicate that consumer and business confidence is starting to pick up, leading to the index’s highest close in seven months.