China's stimulus package to be felt worldwide

Monday 10 November 2008 14.09
China - Package will be felt all over the world
China - Package will be felt all over the world

China's announcement of a stimulus package that will pour more than half a trillion dollars into its economy will have repercussions far beyond its borders in a time of global crisis, economists say.

The package, decided at a recent meeting chaired by Premier Wen Jiabao, calls for tax cuts and increased spending corresponding to about 7% of China's gross domestic product over the next two years.

Reflecting China's growing economic muscle, the four trillion yuan ($590 billion) stimulus package could send ripple effects across the globe, to countries as far away as Latin America.

The package comes amid rapidly worsening predictions for the impact of the financial turmoil on China's export-dependent economy. The nation's trade surplus dropped 2.6% in the first nine months of 2008, making it very likely that overall economic growth this year will slip into single digits for the first time since 2002.

The timing of the package - before a major annual work conference on the economy that usually takes place in November or December - is significant, analysts said. 'The reason for the early announcement is that the government wants to promote confidence in China's economy both domestically and among the international society,' they said.

Judging from early reactions abroad, the outside world had taken note, with the package welcomed by Jim Flaherty, the finance minister of Canada, a supplier of raw materials to China.

British Prime Minister Gordon Brown said in a statement: 'It is vital that all countries play their part in stimulating growth in the world economy at this time.'

This is a message that China may get to hear more often in the coming days and weeks, with advanced economies expected to contract next year for the first time since World War II, according to International Monetary Fund forecasts.

China has the world's largest foreign exchange reserves, at $1.9 trillion, facing it with growing calls to play a part in boosting global growth.

However, Beijing's counter-argument has been that it serves the world best by helping along its own economy, forecast by the IMF to expand by 8.5% in 2009.

But with President Hu Jintao going to a global finance summit in Washington this weekend, he is likely to be met with demands for concrete evidence that China is indeed willing and able to keep up domestic growth.