China’s Economy Shows Signs of Recovery on Stimulus

[RunInRed 19,610]

An interesting article and maybe some evidence that a stimulus package (spending) can help jump start growth again. Let's just hope this is not only an indicator of the global economy bottoming but also a foreshadow of what we can expect soon.

Feb. 13 (Bloomberg) -- China’s economy is showing signs that a 4 trillion yuan ($585 billion) stimulus package is taking effect.

The world’s third-biggest economy may expand 6.6 percent in the second quarter after slowing to 6.3 percent in the three months to March 31, the weakest pace since 1999, according to the median estimates of 14 economists surveyed by Bloomberg News.

China is trying to reverse an economic slide that has already cost 20 million jobs, raising the risk of social unrest as exports plunge and the property market sags. Spending on roads railways and housing has increased prices for iron ore, put a floor under industrial output and helped to drive a record $237 billion of new loans in January.

“China looks set to be the first major economy to recover from the current global meltdown,” said Lu Ting, an economist with Merrill Lynch & Co. in Hong Kong. “China is the only economy in the world to see significant growth in credit to corporate and household sectors after September 2008, when the financial crisis worsened to a near collapse.”

The government’s stimulus plan, announced in November, is beginning to gather momentum. Projects such as the building of 3.5 billion yuan of public houses in Shaanxi province and Shanghai began in December, while Shandong province started work on three new railway lines the same month.

China is committing about 1.2 trillion yuan of central government funds to the plan, which means banks’ willingness to fund projects is crucial. So far they are responding.

Toxic Assets

The value of new loans in January was more than double the record set a year earlier, according to figures released by the People’s Bank of China yesterday.

The lending multiplies the effect of the government’s spending in ways that wouldn’t be possible in the U.S. and Europe, where banks are burdened by toxic assets, said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong.

While China is the only one of the world’s three biggest economies still growing, the expansion has slowed from 13 percent in 2007 and 9 percent last year.

Growth will accelerate from the current pace to 7.2 percent for the full year, according to Wang Qian, an economist with JPMorgan Chase & Co. in Hong Kong. Her calculation is that consumption will contribute 4.4 percentage points and investment 4 percentage points. The collapse in exports will slice off 1.2 percentage points.

Stimulus spending will contribute up to 3 percentage points of the total, she estimates.

Global Recession

Even if the global recession is protracted, China has the ammunition to maintain growth, said Merrill Lynch’s Lu. It has public debt of only 18.5 percent of gross domestic product -- compared with 75 percent in India -- foreign currency reserves of $1.95 trillion, and a balanced budget.

“China has perhaps the deepest pockets in the world,” said Lu. “It can relentlessly ramp up spending to create jobs and meet its growth target.”

The government-backed Purchasing Managers Index, a measure of manufacturing, showed a second monthly increase in January after a record low in November.

“The economy is bottoming,” said Tao Dong, chief Asia economist at Credit Suisse AG in Hong Kong, citing the PMI, the surge in bank lending, and spending on construction and machinery because of the infrastructure projects.

Some commodity prices signal a tentative recovery may be under way, as Chinese companies rebuild inventories.

Iron Ore, Steel

China’s imported iron ore has climbed 28 percent to 690 yuan per metric ton since the end of October. Hot-rolled steel has surged 41 percent from Nov. 13 to 4,027 yuan per metric ton. The Baltic Dry Index, a measure of shipping costs for commodities, has more than doubled since Jan. 28.

“You are starting to see the underlying demand of the Chinese economy,” BHP Billiton Ltd. Chief Executive Officer Marius Kloppers said Feb. 4. “We have seen in the steel business in China that the de-stocking cycle is almost complete and that means people are coming back into the market and buying.”

BHP Billiton is the world’s third-largest producer of iron ore. China is its largest consumer.

Coca-Cola Co., the world’s largest soft-drink maker, said yesterday that sales volume rose 29 percent in China in the fourth quarter after the company sponsored the Beijing Olympic Games. McDonald’s Corp., the world’s largest restaurant company, said Feb. 11 that it may accelerate expansion plans in Asia to boost market share as the region’s economies slow.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

[TigerHeat 9]

You should actually read the articles you post.

[Auburn85 438]

The countries we borrow from should not hand over one penny untilk we take the "buy american" clause out of the bill.

seriously, they have been throwing trillions of dollars to us and haven't seen much of it back. yet, our irresponsibility should be justified to allow us to borrow more?

and then, a buy american clause when it's foreigners who are letting us borrow this money??

you do realize that the thyssen crupp plant that is being built north of mobile is not an american company. they are german.

t.c is investing $4 billion in this project. nearly 3000 good paying jobs. and when alabama gets the borrowed funds for road projects in the future, this means they won't be able to use t.c. when it opens for business.

and you're really going to judge a stimulus that was put forth into an economy not that long ago? of course their economy is going to grow in the short term.

just like ours will grow in the short term, does anyone think long term anymore? there will be bigger problems in the long term.

even the congressional budget office said so, but who cares right?

[au2004ece 30]

The Chinese government has vast surpluses/reserves of money. We have vast deficits and unfunded future entitlement guarantees that were already going to handicap our future.

Do you see the difference?

[Grumps 3,706]

The Chinese government has vast surpluses/reserves of money. We have vast deficits and unfunded future entitlement guarantees that were already going to handicap our future.

Do you see the difference?

That is a great point. Without knowing the similarities and defferences between China's and the U.S's economies, it is impossible to know whether the above article has any relevance to our situation.

[Tigermike 4,240]

The Chinese government has vast surpluses/reserves of money. We have vast deficits and unfunded future entitlement guarantees that were already going to handicap our future.

Do you see the difference?

That is a great point. Without knowing the similarities and defferences between China's and the U.S's economies, it is impossible to know whether the above article has any relevance to our situation.

Add to the list China has vast multitudes of low wage labor. Should we assume the dims really do have similar plans for the middle class in the U.S.?

[Auburn85 438]

The Chinese government has vast surpluses/reserves of money. We have vast deficits and unfunded future entitlement guarantees that were already going to handicap our future.

Do you see the difference?

That is a great point. Without knowing the similarities and defferences between China's and the U.S's economies, it is impossible to know whether the above article has any relevance to our situation.

well put by both of you