Word: stimulus
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...economy like China's, which is the world's third largest but is still just a third the size of the U.S.'s, the scale of the package is staggering. Total new spending is pegged at $586 billion, about 16% of GDP. In contrast, the $787 billion stimulus package approved by the U.S. Congress in February is just 6% of GDP. While upwards of 75% of Chinese spending will go toward infrastructure, just 10% of U.S. spending will. The difference to an extent reflects the fact that the nations are at different stages of economic development: America's railroad networks...
...with its gleaming coastal cities and modern transport hubs, is already the envy of developing countries like India. And from Alaska to Japan, there are plenty of examples around the world of infrastructure projects that owed more to local politicking than to real economic need. Most of China's stimulus spending, critics note, will be supervised by local governments. This will undoubtedly mean that some money will end up lining the pockets of corrupt bureaucrats...
...government much greater flexibility to intervene. Beijing more or less ordered Chinese banks to increase lending in response to the global financial meltdown. Wood, a former journalist well known for predicting the bursting of Japan's bubble 20 years ago, says he expects the beneficial effects of China's stimulus spending to continue for three to six months. While other Asian economies are expected to suffer sharp contractions in 2009, CLSA is predicting that China will hit its government-set GDP growth target of 8% this year, following a drop in the first quarter to 6.1%, the slowest annual growth...
...recovery to last beyond the end of the year, China's crucial manufacturing and export sector must revive. Otherwise, Wood says, stimulus spending could result in a "skewed outcome": billions of dollars in loans made to artificially boost growth could start to go bad, dragging down China's banks; at the same time, the country would remain saddled with a glut of factories producing a vast surplus of goods no one wants...
While the stimulus package has risks, it also affords China a chance to rebalance the country's growing wealth. One by-product of China's prolonged expansion is that coastal regions - marked by boomtowns such as Shanghai, Guangzhou, Xiamen and Tianjin as well as their hinterlands - have grown much faster than the country's interior provinces, which have always been poorer. For years the central government has tried various policies to lift western China, without much result. The infrastructure push gives Beijing another chance to address divisive and potentially explosive wealth gaps that have grown between east and west, rich...