Asian Markets Spike On China Stimulus Package

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China has launched an economic stimulus package worth nearly $600 billion, which includes more government investment in infrastructure, tax deductions for exporters, and bigger subsidies to the poor and farmers. Asian markets soared in response.


From NPR News, this is All Things Considered. I'm Melissa Block.


And I'm Robert Siegel. China's huge stimulus package energized markets in Asia and Europe today, but the ecstatic reaction didn't quite make it to U.S. markets. Stocks here closed slightly down. Yesterday, China announced the plan to spend nearly $600 billion on infrastructure and other domestic projects. In a moment, we'll hear what the stimulus package could mean for other countries, including the U.S. First, though, NPR's Louisa Lim reports on reaction to China's announcement.

LOUISA LIM: The Times of India called it stupendous sized. A global economic gift, gushed The Australian. And the verdict from The Australian Daily Telegraph: The Chinese package has done what its U.S. equivalent failed to do, move Australian stock markets higher. Beijing will no doubt be delighted by the initial response to its plan to spend $586 billion over the next two years. That figure represents a fifth of the total annual output of China's economy, dwarfing other stimulus plans. And Andy Rothman from the brokerage CLSA says the size of the package makes two important statements.

Mr. ANDY ROTHMAN (Strategist, CLSA): One is that the domestic economy in China is slowing more than we expected it to slow just a few months ago. But the other factor, I think, is more in the tone of it. I think there's a desire to match what Western governments are saying in tone and doing in terms of taking a proactive stance. And the Chinese government is saying we're going to go even further than that.

(Soundbite of Chinese newscast)

LIM: On tonight's main Chinese newscast, the message was clear. China's contribution to the world, Prime Minister Wen Jiabao was quoted as saying, would be its fast and stable economic development. China's growth matters because it accounted for a quarter of global growth last year, more than any other country. But last quarter, China's economic growth slowed to 9 percent, the lowest level in five years. Oxford University's Linda Yueh says the stimulus package underlines China's economic strengths, particularly its lack of debt. And she says its focus is correct.

Dr. LINDA YUEH (Fellow in Economics, Oxford University): The main aims of the spending is on targeting areas like infrastructure, transportation and, I think importantly, housing, health. And these kinds of expenditures are clearly geared at reducing social insecurity and boosting the consumption of Chinese consumers, very domestically oriented. And these are areas in which China really does need to spend in any event.

LIM: The plan also includes reconstruction in earthquake-stricken areas, something that was already budgeted for. And some of the spending - for example, on railways and medical clinics - echoes promises made weeks ago. Many analysts believe infrastructure projects are being accelerated. But some, like Linda Yueh, are asking if Beijing could be exaggerating the size of its spending.

Dr. YUEH: It may be they're trying to repackage existing monies to show that they're more in control when actually all of - the reason why this package is so big is because it just includes large-scale projects which are already under way and very crucial to helping China achieve the level of a middle-income country.

LIM: The timing of this announcement is no coincidence, either. For some weeks now, China's been facing calls to exert its financial muscle. And this package has been unveiled ahead of a G20 summit in Washington at the end of this week, which will be attended by President Hu Jintao. Now, he can ride into town, looking if not like a knight in shining armor, than at least like a man with a very big plan. Louisa Lim, NPR News, Shanghai.

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China Unveils $586 Billion Stimulus Package

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Asian stock markets rose sharply after China announced a $586 billion economic stimulus package aimed at countering the effects of the global slowdown on China's booming economy. One analyst described the massive package, which was bigger than expected, as a New Deal with Chinese characteristics.

China's economy is weakening faster than expected. Growth slid to 9 percent in the third quarter, the slowest pace in five years.

Andy Rothman, of the brokerage CLSA, says China's going further than the developed economies by spending more and spending faster on its package. He notes that the stimulus will equal 8 percent of China's gross domestic product next year, compared with U.S. and German packages that are about 1 percent of those countries' GDP.

China will spend money on low-cost housing, social welfare and rural infrastructure, aimed at stimulating domestic spending.

The move inspired investor confidence. Shanghai's composite index closed 7.4 percent higher; Japan's Nikkei index ended 5.8 percent higher; and Hong Kong's Hang Seng was up 3.4 percent.

But analysts warn that China's billions are unlikely to turn around the county's economic slowdown, though they might put a floor under it.



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