China’s 4 Trillion Yuan Stimulus Takes Hold, Picking Up Slack For Lower Export Figures
Results coming out of China this week show that the government’s massive 4 trillion RMB ($586 billion) stimulus package — which is designed to boost domestic consumption, inland infrastructure construction, and earthquake reconstruction projects — coupled with a recent 30.5% boost in urban fixed-asset investment in the first four months of this year are helping the world’s third-largest economy get back on a solid growth track earlier than many other major world economies.
This is good news for China as well as the global economy, which pins much of the hopes of a relatively quick recovery on China’s domestic consumption. As Chinese consumers start to head back to shops, and manufacturers start to work their way up to higher capacity, demand for all kinds of products, both imported and domestically-produced, will help America, the EU, and Japan breathe slightly more easily. Bloomberg’s article today on China’s recovery progress gives encouraging signs that the country’s efforts to stem the financial crisis by investing huge amounts into infrastructure projects that should pay off in the long term should have a far-reaching ripple effect:
Premier Wen Jiabao’s 4 trillion yuan ($586 billion) stimulus package is sparking signs of a government-led recovery in the world’s third-biggest economy after exports collapsed. Government plans to ease capital requirements for borrowing to invest in fixed assets in transportation, property, coal and information technology may spur more private spending.
“Fixed-asset investment is the most important driver for economic growth this year,” said Sun Mingchun, chief China economist at Nomura Holdings Inc. in Hong Kong.
Sun expects gross domestic product to expand more quickly each quarter this year, jumping to a 9.8 percent gain in the final three months from a year earlier.
Additional measures are designed to upgrade existing manufacturing capabilities while increasing international cooperation on several large-scale projects in the south:
China will give 20 billion yuan this year in interest-rate subsidies on bank loans to help steel, petrochemical and automobile companies upgrade technology, the State Council said on May 6.
Pending investments include a plan by China Petroleum & Chemical Corp. and Kuwait’s national oil company to build a $9 billion refining complex in Guangdong province. Volkswagen AG and partner China FAW Group Corp. plan to spend 550 million euros ($737 million) expanding a factory in Chengdu.
With the release of these promising figures, which reflect a significant drop in global demand for China’s exports yet indicate that domestic investment and consumer confidence will help counteract a soft global economy, Chinese investors snapped up shares, giving the region’s stock markets a minor boost. As the AP wrote today on China’s recovery efforts:
Chinese investors appeared to take [today’s] trade data in stride, snapping up property shares and other blue chips and pushing the benchmark Shanghai Stock Exchange up 1.5 percent on Tuesday to 2,618.17.
There were some glimmers of hope even in the trade figures, which can fluctuate wildly from month to month.
Recent increases from the previous month in exports of clothing, shoes, plastics and other labor-intensive consumer goods suggest some recovery in demand. And surging imports of iron ore, crude oil and other commodities suggest that China’s domestic demand may be stabilizing.
“While there is no sign of a recovery in the April data, the pace of deterioration was much milder than it was in late 2008, and the bottoming of exports could happen soon,” said Alastair Chan, an economist with Moody’s Economy.com in Sydney.