A Stimulus Package That Works: China’s 7.9% GDP Growth

[thoughtone]

source: 24/7 Wall Street

China’s GDP rose 7.9% in the second quarter, which is especially impressive since the figure was only 6.1% in the previous quarter.

Economists will voice a number of concerns about the growth. It is artificial, because of China’s $585 billion stimulus. package. The expansion could lead to bubbles in the stock and real estate markets because of the tremendous liquidity and credit going to business and individual consumers. The stimulus may also mask the real effects of slow exports and factory production.

The US should be so lucky, no matter what the critics have to say about China’s success.

The 7.9% GDP improvement is based on the real success of the Chinese stimulus efforts. The country’s program was announced at about the same time as the US $787 billion package. The American effort has barely taken hold and most economists do not believe it will bear any real fruit until well into next year.

The suddenness with which the Chinese stimulus has worked may be a testament to the benefits of having a central, totalitarian government. It probably also points to the fact that the plans for the stimulus package of the world’s most populous nation are not long term. China appears to be gambling that if it can sustain its economy for another year, a global recovery will take over and supply the necessary demand for goods that will keep a recovery sustained.

The American stimulus package is more carefully crafted and has goals that are based on how the government wants the economy to look in 2010, 2011, and 2012. It is based on the oft mentioned goal of adding or replacing 3.5 million US jobs. Without saying as much, the American stimulus is based on the idea that a recovery may not take hold for a year or two and that money will have to consistently pumped into the economy over that time period.

The China stimulus package is working better than the American one, so far. If US unemployment goes well above 10% and stays there for a year, the edge the Chinese got from their program will be permanent.




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[oneofmany]

Interesting article. As one who has been to China several times in the last few years, business seems to be moving forward there like usual.

One sentence in the article seemed strange to me. It reads: "The American stimulus package is more carefully crafted and has goals that are based on how the government wants the economy to look in 2010, 2011, and 2012."

I am not exactly sure how American stimulus package was more carefully crafted. China worked very hard on theirs as well. The only gamble is keeping the economy forward moving into their next 5-year plan, which is to further diversify the economy (making it less vulnerable to export trends and able to sustain itself better on its own merit). While China is indeed taking measures for short-term survival, the current stimulus must help transition China into their 2011-2015 plan when the current 2006-2010 plan ends in 2 months. If the current stimulus jacks up China's future plans, they'll be in trouble. So just like the USA, China has to plan for the long-term with their stimulus and merely aren't throwing money around.

If the Chinese stimulus fails, it will be interesting because I'll probably visit there next year for a few months. China usually puts more of their GDP into infrastructure than the USA does and the Chinese stimulus went into more mega project/infrastructure than the American stimulus (even if the American numbers were somehow higher, just the sheer magnitude of high speed trains, highways and what not produced/in production by China is more pronounced than America at the moment).

 

[Upgrade Dave]

Since we're talking about China, this article caught my eye yesterday

The cracks in China's engine
Powered by rip-roaring growth, China just surpassed Japan as the world's No. 2 economy. But are strains starting to show?
posted on October 1, 2010, at 11:20 AM

A construction worker climbs a scaffolding at the Shiliupu port in Shanghai, China. Photo: Corbis SEE ALL 16 PHOTOS
How quickly has China's economy grown?
It's been expanding at a staggering pace. For the past three decades, the economy has grown by an average of 10 percent a year, lifting an astonishing 500 million Chinese out of poverty. Although its growth is expected to slow this year to less than 9 percent, China's 2010 gross domestic product is projected to be $5.36 trillion. China is now the world's leading producer of everything from toys to consumer electronics and clothing — 60 percent of the world's clothing is manufactured in China. To feed its industrial appetite, China has become the world's largest importer of aluminum, copper, and iron ore. "This is just the beginning," says Wang Tao, an economist in Beijing. "China . . . has a lot of room to grow."

Might anything slow it down?
Quite a few things. First, China's growth depends on exports, which makes its economy vulnerable to global economic conditions. China was hard-hit by the 2008 financial crisis and the global recession, when international demand for Chinese goods fell 10 percent, by some estimates. As a result, some 100,000 Chinese factories closed, throwing 30 million people out of work. To revive its sagging economy, China launched a successful $1.1 trillion stimulus program. But both manufacturing growth and infrastructure investment slowed recently, raising fears that China's economy may one day run short of miracles — with potentially grave consequences for the country's stability.

Is China unstable?
Not yet. But while the Communist Party retains largely unchallenged control of China' s government, the rapid transformation of a rural, peasant society into a 21st-century industrial power has produced real political, economic, and social strains. In recent decades, more than 200 million peasants — of a total population of 1.3 billion — have migrated from China's rural interior to find work in cities, many of which sprang up virtually overnight (see below). There, uprooted peasants labor in primitive conditions with little job security. Many are also exposed, for the first time, to China's newly affluent professionals and entrepreneurs, whose conspicuous consumption can stir resentment. Affluent Chinese, says Yi Zhao, a civil servant who lives in China's heavily industrialized Guangdong province, "collect wealth at the expense of the poor."

Are workers likely to rebel?
They already have. China was rocked this year by strikes and demonstrations — some violent — by workers demanding better pay and conditions. The boom has made tens of thousands of Chinese so rich that sales of Mercedes-Benzes, Jaguars, and Rolls-Royces soared more than 100 percent in a single year. Meanwhile, hundreds of millions of others still live in primitive huts and scrape out a subsistence living. Widespread poverty drags China's per capita income down to $3,678 — roughly on par with Angola and Azerbaijan. Tensions over rising inequality have even been linked to a series of horrific attacks on schoolchildren by alienated, middle-aged men who seemed to feel left behind by China's new prosperity.

Can education close the income gap?
Not soon. More than 6 million college graduates enter China's workforce annually — up from 1 million in 1999 — but students often find little skilled work after they graduate. Many end up working for $300 to $500 a month — little more than a factory worker earns, and less than workers with college degrees earned just a few years ago. "The government has failed to create enough jobs," says Su Hong, 23, a college graduate who's competing with about 1 million others for 15,000 government jobs. "People’s expectations for employment are getting lower and lower."

What else has gone wrong?
China's breakneck growth has been purchased at the price of creating one of the most toxic environments on earth. Half of China's 50,000 rivers are severely polluted, and 16 of the 20 cities with the world's worst air quality are in China — a consequence of the country's heavy dependence on coal. Unregulated road building and mining have scarred the countryside, leading to disasters like last summer's mudslides in northwestern China that left more than 1,700 dead or missing. The World Bank says that by 2020, as many as 30 million "environmental refugees" may roam China in search of breathable air and potable water. "We’ve pushed the environment to its limit," says Sun Haixia, a factory worker in Linfen, one of China's most polluted cities.

Are Chinese leaders worried?
It would appear so. Prime Minister Wen Jiabao recently said he'll "make sure China maintains a sense of crisis" as it struggles to address its problems; in a sure sign that the government is nervous, people who persist in protesting environmental or political conditions are being hauled off to jail. Chinese leaders have tacitly encouraged a rise in pay scales in an effort to create consumer demand at home, which would reduce China's dependence on exports. And China plans to invest at least $440 billion in green technologies over the next decade to mitigate environmental degradation. China is also developing rural areas to reduce income disparities between city-dwellers and peasants. But achieving all this will require economic growth to continue at a blistering pace. If the miracle falters, warns Zhou Tianyong, who trains government bureaucrats at Beijing's Central Party School, China risks falling into a "trap of social and political turmoil, slow economic growth, enduring lack of prosperity, and weak and declining national competitiveness."

Eating bitterness
In 1994, Zhang Changhua and Chen Suqin, the married couple at the center of the documentary Last Train Home, left their impoverished village in Sichuan for Guangzhou in southern China. Since then, Guangzhou's population has more than doubled to 10 million, and its wealth has soared. But Zhang and Chen work long days stitching clothing in a cramped workshop, and return home to a squalid room in a crowded cement building. Like the rest of China's 130 million migrant workers, they have no unemployment or health insurance, no pension plan, and few legal rights. In China, tireless workers are praised for their willingness to "eat bitterness." For that feast, at least, migrants are at the front of the line

 

[Lamarr]

Economists will voice a number of concerns about the growth. It is artificial, because of China’s $585 billion stimulus. package. The expansion could lead to bubbles in the stock and real estate markets because of the tremendous liquidity and credit going to business and individual consumers. The stimulus may also mask the real effects of slow exports and factory production.

1 important point) China is a creditor nation, therefore they didn't have to borrow it's $585 billion. One key ingredient to economic growth is savings, they have done this well. Not really gonna comment on the long-term effects but it appears to be working out in the short-term.

The American stimulus package is more carefully crafted and has goals that are based on how the government wants the economy to look in 2010, 2011, and 2012.

IMO, American politicians have allocated the $$$ to secure future votes as opposed to alloocating the $$$ towards land, labor, and capital. For instance, after WW2 (when America was the largest creditor nation), American ingenuity and capital produced factories and $$$ was allocated to build the nation's infrastructure. It was seen as an investment to increase our overall efficiency & productivity

 

[thoughtone]

1 important point) China is a creditor nation, therefore they didn't have to borrow it's $585 billion. One key ingredient to economic growth is savings, they have done this well. Not really gonna comment on the long-term effects but it appears to be working out in the short-term.

How did they get that way? During the Reagan administration we (USA) were the largest creditor nation in the world. Now we are the largest debtor in the world. What policies led to that?

IMO, American politicians have allocated the $$$ to secure future votes as opposed to alloocating the $$$ towards land, labor, and capital. For instance, after WW2 (when America was the largest creditor nation), American ingenuity and capital produced factories and $$$ was allocated to build the nation's infrastructure. It was seen as an investment to increase our overall efficiency & productivity

You'll get no argument from me on that point. When the rise of supply side economics and free trade became the policy, the fall of America began.

 

[Lamarr]

How did they get that way? During the Reagan administration we (USA) were the largest creditor nation in the world. Now we are the largest debtor in the world. What policies led to that?

Usually, entities go into debt because they spend more $$$ than they generate. Every Admin since Nixon has added to the national debt. So, include Ford, Carter, Reagan, Bush Sr, Clinton, "W", & Obama. Furthermore, anyone that promotes the ideology that spending $$$ leads to prosperity is either clueless or complicit in the crime against the people

You'll get no argument from me on that point. When the rise of supply side economics and free trade became the policy, the fall of America began.

"Free Trade", I think that is the term that is promoted but it is anything but free, more like "managed" trade. Free trade occurs when company A & company B make an agreement, regardless of where the the companies are located. Free trade does not require a govt. mandate to regulate the terms of an agreement

 

[Upgrade Dave]

1 important point) China is a creditor nation, therefore they didn't have to borrow it's $585 billion. One key ingredient to economic growth is savings, they have done this well. Not really gonna comment on the long-term effects but it appears to be working out in the short-term.

That's the thinking that turns creditor nations into debtor nations, thinking short term with either indifference or even hostility to the long term.

IMO, American politicians have allocated the $$$ to secure future votes as opposed to alloocating the $$$ towards land, labor, and capital. For instance, after WW2 (when America was the largest creditor nation), American ingenuity and capital produced factories and $$$ was allocated to build the nation's infrastructure. It was seen as an investment to increase our overall efficiency & productivity

But that type of planning and spending today is seen as pork and part of a "liberal/environmentalist/leftist" agenda. With the growing econonies and energy demands of China and India, it would seem diligent we develop renewable resources ("green" energy) and focusing on conservation, environmentally and financially.

Usually, entities go into debt because they spend more $$$ than they generate. Every Admin since Nixon has added to the national debt. So, include Ford, Carter, Reagan, Bush Sr, Clinton, "W", & Obama. Furthermore, anyone that promotes the ideology that spending $$$ leads to prosperity is either clueless or complicit in the crime against the people

All true but it should be noted that supply side Presidents have pushed and expanded the debt to a greater degree than the more Keynesian leaning Presidents.
Funny thing is the liberal/centrist Democrats are never 100% Keynesian but the supply siders are all the way supply siders.

"Free Trade", I think that is the term that is promoted but it is anything but free, more like "managed" trade. Free trade occurs when company A & company B make an agreement, regardless of where the the companies are located. Free trade does not require a govt. mandate to regulate the terms of an agreement

 

[thoughtone]

Usually, entities go into debt because they spend more $$$ than they generate. Every Admin since Nixon has added to the national debt. So, include Ford, Carter, Reagan, Bush Sr, Clinton, "W", & Obama. Furthermore, anyone that promotes the ideology that spending $$$ leads to prosperity is either clueless or complicit in the crime against the people



"Free Trade", I think that is the term that is promoted but it is anything but free, more like "managed" trade. Free trade occurs when company A & company B make an agreement, regardless of where the the companies are located. Free trade does not require a govt. mandate to regulate the terms of an agreement

Every Admin since Nixon has added to the national debt.

Every administration since George Washington has added to the debt. It only became unmanageable when Reagan enacted the Reagan Revolution policies. First trillion dollar debt in 1982. In fact many economies say that the debt was manageable until 2002.

Lamarr, think! LBJ had the Great Society (which included Medicare and Medicate), the Viet Nam war and ramped up the space program and didn't increase the federal debt load significantly. What was the difference between pre-Reagan and today? Reagan reduced the corporate tax rate and reduced capital gains tax rates. Clinton raised them slightly and GW lowered them significantly again.

Free trade does not require a govt. mandate to regulate the terms of an agreement

There you go again with your anti business regulation, but when the shit hits the fan you are the loudest to bitch about why wasn't the government looking out for things.

You always try to have it both ways!

 

[Lamarr]

But that type of planning and spending today is seen as pork and part of a "liberal/environmentalist/leftist" agenda. With the growing econonies and energy demands of China and India, it would seem diligent we develop renewable resources ("green" energy) and focusing on conservation, environmentally and financially.

I just have sooo many thoughts on this statement. With the way $$$ is being allocated today, IMO, it is promoting the "environmentalist/leftist" agenda. If it was not part of an agenda, Pres. Obama would not have to say the following to promote cap-n-trade.

"Under my plan of a cap and trade system, electricity rates would necessarily skyrocket."

it's obvious he wants to use price as a mechanism to control human behavior

1) Is it the 'role' of govt to develop 'green' technologies? and at what cost to the citizens?
2) What about the 'free' market? The free market will develop a more cost effective / efficient solution IF it is what the public wants
3) My honest opinion, "Big Oil" has already bought the patents to revolutionize modern transportation & they are just surpressing the technology. we screwed anyway!
4) If none of this sways your opinion, I'll fall back on my original premise: We're broke, we are the largest debtor nation on the planet, we can't afford to follow an agenda that doesn't lead to productivity and the efficient use of land, labor, & capital. Why not follow an agenda that has been proven to work?

All true but it should be noted that supply side Presidents have pushed and expanded the debt to a greater degree than the more Keynesian leaning Presidents.
Funny thing is the liberal/centrist Democrats are never 100% Keynesian but the supply siders are all the way supply siders.

True, but at this point in time, debt is unsustainable. If we could only return to govt spending levels during the Clinton era?

What was the difference between pre-Reagan and today?

You don't want to talk about Nixon taking us off the "gold" standard / Bretton Woods?

Reagan reduced the corporate tax rate and reduced capital gains tax rates. Clinton raised them slightly and GW lowered them significantly again.

Seriously, I need you to tell me what is wrong with allowing a citizen to keep $$$ that he or she has earned?

There you go again with your anti business regulation, but when the shit hits the fan you are the loudest to bitch about why wasn't the government looking out for things.

Its not from a standpoint of being 'anti-business regulation', it's that the NAFTA legislation publicly screwed every American worker, from the UAW to the textile industry (even Dave agreed with my statement). It was a terrible piece of legislation & I'm just exposing it and the crooks that promoted it

 

[thoughtone]

You don't want to talk about Nixon taking us off the "gold" standard / Bretton Woods?

Many conservative supply side economists say that Nixon's abandonment of the Bretton Woods agreement played the deceive roll in the change of the economy post 1971. While many Keynesians say it played only a cyclical roll. My view is that the oil crisis of the 1970s played more of a roll. First the oil embargo of 1973 and then we (USA) reaching peak oil in 1978. These were far more pivotal. It literally changed the way we view our lives.

Seriously, I need you to tell me what is wrong with allowing a citizen to keep $$$ that he or she has earned?

Nothing is wrong, as long as the citizens that profit the most from this economy that all American tax payers built understand that it costs to have and to maintain a free system. That is something that seems to be lost in the post Reagan era, Ayn Rand/Libertarian generation.

It's not from a standpoint of being 'anti-business regulation', it's that the NAFTA legislation publicly screwed every American worker, from the UAW to the textile industry (even Dave agreed with my statement). It was a terrible piece of legislation & I'm just exposing it and the crooks that promoted it

You must want to find something you can oppose me on. I said NAFTA was shit long before you came on this board. Check how many H. Ross Perot vidz I have posted. NAFTA is not regulation, NAFTA is a treaty. I'm talking about how you and others claim that government is the problem yet, when GW got rid of or ignored regulations you wanted the government to go after private enterprise, at the same time calling President Obama socialist or fascist.

 

[Lamarr]

Many conservative supply side economists say that Nixon's abandonment of the Bretton Woods agreement played the deceive roll in the change of the economy post 1971. While many Keynesians say it played only a cyclical roll. My view is that the oil crisis of the 1970s played more of a roll. First the oil embargo of 1973 and then we (USA) reaching peak oil in 1978. These were far more pivotal. It literally changed the way we view our lives.

When Nixon abandoned Bretton Woods, it officially de-linked the US to gold (cancelled the convertability of the dollar to gold). Since the Fed was not limited by gold, they could inflate the $$$ supply at their own whim. Even Richard Nixon, who claimed not to be a fan of big government, was moved to say, "We are all Keynesians now."

Was this the first glimpse of the 'new' Big Govt Republican

Reagan - Keynesian (military spending)
Bush Sr. - Keynesian (War on Drugs)
Clinton - Keynesian ("Bubbles" Greenspan)
"W" - Keynesian (War on Terror, banker bailout! conservative, my azz)
Obama - Keynesian (stimulus's)

They couldn't have done any of that if the gold standard were still in play!

 

[thoughtone]

When Nixon abandoned Bretton Woods, it officially de-linked the US to gold (cancelled the convertability of the dollar to gold). Since the Fed was not limited by gold, they could inflate the $$$ supply at their own whim. Even Richard Nixon, who claimed not to be a fan of big government, was moved to say, "We are all Keynesians now."

Was this the first glimpse of the 'new' Big Govt Republican

Reagan - Keynesian (military spending)
Bush Sr. - Keynesian (War on Drugs)
Clinton - Keynesian ("Bubbles" Greenspan)
"W" - Keynesian (War on Terror, banker bailout! conservative, my azz)
Obama - Keynesian (stimulus's)

They couldn't have done any of that if the gold standard were still in play!

"We are all Keynesians now."

Which proves that the gold standard didn't work!

Was this the first glimpse of the 'new' Big Govt Republican

Just a right wing talking point to shift the blame.

Teddy Roosevelt believed in governmental intervention. The Pure Food and Drug Act, which led to the creation of the FDA. Government regulation even you can't be ambiguous on.

Reagan - Keynesian (military spending)
Bush Sr. - Keynesian (War on Drugs)
Clinton - Keynesian ("Bubbles" Greenspan)
"W" - Keynesian (War on Terror, banker bailout! conservative, my azz)
Obama - Keynesian (stimulus's)

Reagan - Keynesian (military spending)
Tax cuts for the top 5%, first trillion dollar defect. deregulation of business.

Bush Sr. - Keynesian (War on Drugs)
No fan of HW Bush but he didn't start the war on drugs, Nixon declared war on drugs.

Clinton - Keynesian ("Bubbles" Greenspan)
There were no bubbles under Clinton.

"W" - Keynesian (War on Terror, banker bailout! conservative, my azz)
GW changed his tune the last two months of his presidency when he realized that conservatism had no answers to the fuck up it created for 8 years.

Obama - Keynesian (stimulus's)
Had to do what he had to do to stabilize the conservatism of the last 30 years!

Either way, the right wing controlled media laughed at Jimmy Carter, now virtually everything he said and did is proving correct.

 

[Lamarr]

Which proves that the gold standard didn't work!

what you're not acknowledging is that with the gold standard, this extravagant spending / speculation over the last 30 yrs wouldn't have been possible.

Reagan - Keynesian (military spending)
Tax cuts for the top 5%, first trillion dollar defect. deregulation of business.

Bush Sr. - Keynesian (War on Drugs)
No fan of HW Bush but he didn't start the war on drugs, Nixon declared war on drugs.

Clinton - Keynesian ("Bubbles" Greenspan)
There were no bubbles under Clinton.

"W" - Keynesian (War on Terror, banker bailout! conservative, my azz)
GW changed his tune the last two months of his presidency when he realized that conservatism had no answers to the fuck up it created for 8 years.

Obama - Keynesian (stimulus's)
Had to do what he had to do to stabilize the conservatism of the last 30 years!

Either way, the right wing controlled media laughed at Jimmy Carter, now virtually everything he said and did is proving correct.

no bubbles under Clinton, Does the term NASDAQ ring a bell?

I'm looking at this as an economist would, regardless of the R or D next to their name, all these presidents believed in deficit spending (Keynesian economics)! Remember the post you made about Cheney saying "deficits don't really matter"? That further exposes his Keynesian outlook.

numbers don't lie, I'll just post this chart

 

[Lamarr]

Which proves that the gold standard didn't work!

so let me get this straight: when we had a gold standard, we were a creditor nation. We abandon the gold standard, we are the largest debtor nation.

And you still say Ron Paul is wacky?

 

[thoughtone]

so let me get this straight: when we had a gold standard, we were a creditor nation. We abandon the gold standard, we are the largest debtor nation.

And you still say Ron Paul is wacky?

Since you won't answer the question as to why Nixon pulled out of the Bretton Woods agreement, I will tell you. We were a debtor nation while on the gold standard. The US could not meet it's obligations, so Nixon abandoned the agreement and enacted several draconian measures. Kind of like what GW did when he created TARP and bailed out GM and Chrysler. Ironically just like the Iraq/Afghan War, The Viet Nam War was a major cause . You need to get your time lines in order.

I would ask you to look up what Nixon did but you won't do it.

Please post the link to that graph.