Monday, November 10, 2008

China introduces new stimulus plan

China authorizes “massive” stimulus package, Financial Times
China stocks up 5% in response to 4 million yuan stimulus package, China View

China approved a “massive” new stimulus package on Sunday as part of its plan to shore up the country’s troubled economy. As part of this stimulus package, the Chinese government plans to spend $586 billion on infrastructure and social welfare over the next two years, including investing in low-income housing, electricity, water, the environment, technological innovation and disaster relief and transport. The government also said that the new investments stem from its decision to implement an “active” fiscal policy in response to the global financial crisis, and that it will maintain a “moderately active” monetary policy.

The global financial crisis has begun to hit China’s economy hard and it is slowing down more rapidly than expected. The economy’s growth rate could be as low as six percent this year, less than half of last year’s rate. The slowdown is a result of weakening international demand for Chinese products and a struggling local property market. In addition to the stimulus package, the Chinese government has also cut interest rates three times, removed quotas for bank lending and instituted new plans to help homebuyers and exporters.

(1) Is the new stimulus package likely to provide the hoped for boost in the Chinese economy?
(2) What other steps could China take to help its economy deal with the global financial crisis?
(3) What impact does a slowed Chinese economy have on the rest of the world?

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