China Releases $586 Billion Economic Stimulus Plan

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Nov. 10 – China has released an economic stimulus plan worth an estimated US$586 billion to stimulate its slowing economy and build new railways, communities, subways and airports in the next two years.

The stimulus plan is effective immediately, with US$18 billion already earmarked for the last quarter of the year. The US$586 billion package will comprise 7 percent of its gross domestic product and will become the biggest economic stimulus plan of its kind undertaken by the government.

“Over the past two months, the global financial crisis has been intensifying daily,” the State Council said in a statement. “In expanding investment, we must be fast and heavy-handed.”

The statement added, “China has decided to adopt an active fiscal policy and moderately easy monetary policies to foster fast but steady economic growth by expanding domestic demand.”

The move has led to positive news in the Asian markets with the Japanese Nikkei index increased by 5.6 percent in trading early Monday.

According to the New York Times, world leaders are expected to encourage China to play its role of helping strengthen the global economy.In less than a week, President Hu Jintao is due to arrive in Washington for a global economic summit meeting hosted by President Bush.

China’s stimulus plan brings to mind the reforms implemented by United States President Franklin D. Roosevelt during the Great Depression. Mr. Roosevelt introduced major economic changes in the United States and increased government regulation while also funding huge public-works projects to spur an economic recovery.

In China, the government exerts a heavy hand on investment trends and can be more flexibility in bracing the economy for a downturn. The country’s infrastructure investments usually come from state banks and state-owned companies that are pushed to expand rapidly.

The stimulus plan will include 10 areas: low-income housing, electricity, water, rural infrastructure and projects aimed at environmental protection and technological innovation.

The Chinese economy has not been immune to the effects of the global financial crisis. This year, economic growth decreased to 9 percent, after five years of growth in excess of 10 percent. Exports and investment slowed down while consumer confidence waned along with stock and property markets. Many factories in southern China have already been forced to closed down as exports demand winded which led to mass layoffs of migrant workers.

Arthur Kroeber, managing director of a Beijing-based economic research firm, at Dragonomics, told the New york Times that the the government was concerned because people in China had suddenly pulled back on spending as a precautionary move because of worries about China’s suffering with the global economy.

“The government is sending a signal saying: ‘We’re going to spend in a big way,’ ” Mr. Kroeber said. “This is designed to say to the market that people should not panic.”