Markets Welcome Chinese Stimulus Plan

Four trillion yuan or 400 billion euros -- that’s how much extra money the Chinese government wants to inject into the economy by 2010 to boost domestic demand.

As the demand for China’s exports falls across the world, Beijing has stressed it wants to pump up demand at home and rescue its export sector.

Not convinced, one watch manufacturer in Dongguan in central Guangdong province said a third of the factories were already out of operation in his city and prospects were bleak.

“Many companies in my sector are seriously affected by the financial crisis,” he said. “Some have already shut down; others are trying to get rid of their finished products. It doesn’t look good. I don’t think the situation will improve until customers become optimistic again.”

Boosting optimism and infrastructure

To help boost this needed optimism, the Xinhua state news agency said on Sunday the government’s extra spending would go towards improving China’s infrastructure.

Investment would target social projects such as public housing and other key sectors such as transport as part of an “active” fiscal policy.

Small and medium-sized companies would also receive loans as part of the package, Xinhua said.

Package less spectacular in long run

However, there is some concern among economists that the figure announced by Beijing does not refer to extra spending but encompasses money that was already earmarked.

New spending accounts for about half of the amount only. This would make the package less spectacular and far-reaching than it initially appears.

Nonetheless, symbolically, the announcement of the package indicates that Beijing is determined to meet the problems its economy faces head on and this, at least, will bring some short-term relief to the global markets.

On Monday, stocks soared across Asia after the plan had been revealed.

China has a significant role

Ahead of the emergency summit in the US capital this weekend, Germany’s Foreign Minister Frank-Walter Steinmeier said that China had a significant role to play.

“Without doubt, China is also affected by the finance crisis. To me, the signs from Beijing indicate that they are also eager to contribute to creating new rules.”

At the very least, China would not raise any objections or create problems, thought Dr Axel Berkofsky from the European Studies Centre in Brussels.

“The recession in the West will have a direct and automatic impact on China’s economic development,” he said. “I think that China realises this and will thus take part in the summit as a constructive partner without pointing the finger.”

Outgoing US President George W Bush will host the emergency summit of world leaders and finance ministers this coming Saturday and Sunday in Washington DC.

The aim is to develop remedies for the ailing global finance system. More transparency, better risk management and improved bank capitalisation are some of the demands.