Sunday, November 9, 2008

China Announces USD 586 Billion Stimulus Plan

The News: China Announces a BIG Stimulus Plan
China announced a 4 trillion yuan ($586 billion) stimulus plan to spur expansion in the world's fourth-largest economy, helping sustain global growth as the U.S., Europe and Japan teeter on the brink of recession.

The funds, equivalent to almost a fifth of China's $3.3 trillion gross domestic product last year, will be used by the end of 2010, the Beijing-based State Council said today on its Web site. China will adopt a ``pro-active fiscal policy'' and pursue a ``moderately loose'' monetary policy, it said.

My View:
This news is a surprise to most but the nature of surprise is different. Some will see it as a big positive while others will see the facts behind it - how bad the situation on a global front has become. I fall in the latter category, although I was expecting.
In fact, this announcement should send jitters around markets (they may actually show exuberance) as it shows how big the problem is. China, which was so far being seen immune to global financial crisis, is actually in bigger danger. Some pundits were betting on BRIC (Brazil, Russia, India and China) to show considerable resilience with respect to what is happening around the world. The fact is given that China and India have to feed their almost one third of world population, should make the global financial crisis feel at home with considerable drag on their economies.

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