China Economy: Chinese Stimulus Package Counteracting Plunge in Export Orders

Shanghai, 20 Apr. China Economy: Chinese Stimulus Package Counteracting Plunge in Export Orders

Shanghai, 20 Apr. China Economy: Chinese Stimulus Package Counteracting Plunge in Export Orders

When China announced an economic stimulus package worth $585 billion in response to the global Financial Crisis in Q4 2008, it was met with some scepticism. Commentators suggested much of this money was already committed or might not find its way into the system at all.

Recent data suggests that if anything the Chinese stimulus is not only real, it is having an immediate effect. One benefit of a command and control economy like China’s is that new programs can be mandated by Beijing and be implemented by both the government and government owned entities extremely quickly.

Although exports from China fell off a cliff at the end of 2008 and start of 2009, the drop has at least moderated. Export earnings are still lagging almost 30% below where they were around Q3 of 2008, according to the China National Bureau of Statistics. They fell 17.1% in March versus the same month in 2008, and 25.7% in February. This slashed China’s March trade surplus to half of what it was in March of last year, $18.56 billion, but still much higher than in the previous month. There have been unprecedented layoffs as factories have closed. Some estimates put the number of unemployed migrant workers north of 30 million.

Chinese Premier Wen Jiabao has said that factory output has stabilised, however. Internal investment has already started spiking, a direct result of the stimulus package.

There is also a knock on effect in the private sector. Under Chinese government mandate, banks authorised significant numbers loans in the first quarter of 2009, almost equal to all of the loans made in 2008. This $670 billion of fresh funds has sparked new growth in domestic investment, reversing negative sentiment about China’s growth potential.

The stock markets have also shown signs of recovering – the Shanghai composite index has posted a 38% gain since the start of the year.

With China’s massive manufacturing sectors forming a considerable share of its economy, it consumes tremendous amounts of raw materials. As factories ramp up production, this demand will be welcome to the global economies that supply to China. One example is the record imports of iron ore in March, in preparation for increased output.

Car sales, in their third consecutive month of record figures, are outpacing the US in terms of sheer numbers. Housing starts are on the rise too, as the market seems to be hitting bottom. This has resulted in contagious positive consumer confidence.

“There is now a growing degree of confidence that the stimulus package is having an effect,” said the World Bank’s chief economist for Asia, Vikram Nehru.

“China’s centrally-planned command economy is able to institute change quickly by directing bank investment spending and lending as and when it wants,” added Hosni Afleck, Chief Economist for EconomyWatch.com. “It doesn’t have to wait for the whole economy to react and for the trickle-down effects to ensue.”

If China’s economy is indeed on its way to recovery, the rest of the world stands to benefit tremendously. The turnaround will be slow and the mood in China cautious, but as hope returns in China consumer confidence will be bolstered elsewhere as well, and China’s importance on the world stage can only grow correspondingly.

Chen Xiulian, EconomyWatch.com{br][br]