Sunday, November 9, 2008

China Gets on the Stimulus Train

China is implementing a stimulus package to the tune of $586 Billion, dwarfing the United States own ~$160 Billion package last spring. Per the WSJ:

Premier Wen Jiabao's cabinet set plans for 4 trillion yuan, or $586 billion, in spending and stimulus measures through the end of 2010 aimed specifically to target people's livelihood, the official Xinhua News Agency said Sunday night.

While the stimulus package is almost 4x larger in dollar terms, it is a whopping 15x larger as a percent of their economy.

Along with reasons associated with the global slowdown, according to Naked Capitalism the measure was enacted because:

the Chinese economy is likely decelerating faster than was commonly believed. It also means the Chinese officialdom is not at all willing to let growth slow far enough to risk social unrest. It will take some time to discern whether they succeed in the latter objective.

Expect additional packages in the U.S. in the coming months / years that brings the relative size of the United States stimulus packages more in line. As Paul Krugman outlines, Obama should be prepared to spend, spend, spend:

Implications for Obama: be inspired by FDR, but don’t imitate him slavishly. In particular, your economic policy should be bolder, not more cautious.

Other Sources: Wikipedia