China’s Stimulus Will Work. Or Will It? (Updated)
With wealth disparities widening, Hu and the Prime Minister Wen Jiabao have to maintain growth and provide millions of new jobs. They have to rebalance the economy away from exports to domestic demand, away from fixed-assets investment towards consumption, away from labour-intensive, low value-added goods to more advanced products – the first contract for sale of Chinese airliners to a US leasing firm have been signed while machinery and cars were the fastest growing export sectors in the first half of this year.
Sunday’s announcement is a step on that path. But it also underlines the shift in the global balance as China’s size and resources make it much more than a provider of cheap exports. Its economic health will become more and more entwined with the rest of the world’s in ways of which Deng Xiaoping can only have dreamt. The weekend summit will provide an opportunity to chart how that relationship will develop but one thing is certain: for China, China’s interests predominate. Mr Brown and others can only hope that there really is symbiosis between Beijing and the rest of the world.
MarketWatch looks at the “Winners and losers from China’s $586 billion boost.”
Update: Read more reactions to China’s stimulus plan. From AP, news that China’s stocks rose on news of the plan:
The benchmark Shanghai Composite Index jumped 3.68 percent, or 68.5 points, to close at 1927.61. The smaller Shenzhen Composite Index rose 4.15 percent to 522.58.
Investors were encouraged by announcements that Beijing will cut taxes on exporters, give its ministries an extra 100 billion yuan ($15 billion) to spend this year and boost investment by a major state utility company.
See also: “China’s Stimulus vs. America’s Bailout” from the Motley Fool, and “China’s Stimulus Package May Boost California, Japan” from Bloomberg.
The Opposite End of China blog looks at how the trickle-down effect of the global economic slowdown is affecting workers and farmers in Xinjiang, where up to half of the current cotton crop is going unsold:
So… a mother in North Carolina decides to hold-off purchasing some new jeans or t-shirts at Wal-Mart for her kids; stockpiles build up at warehouses, and Wal-Mart reduces orders; clothing factories shut down in the Pearl River Delta; cotton cloth manufactures pull the plug in Xi’an; and, farmers and itinerant workers go hungry in Xinjiang.
What’s next? I’m not making any predictions, especially outside of Xinjiang. But as for Uyghurs, when you mix increased economic desperation with a sense of increased repression in recent months, pressure is being added to an already dangerous situation. Let’s hope it doesn’t explode.