China, the world's fourth largest economy, announced a 4 trillion yuan ($586 billion) stimulus plan. This is equivalent to about a fifth of China's 2007 $3.3 trillion gross domestic product.
The Chinese are sending a message to the world that they are doing their share and are important players in the world economy game. And they are doing a much better job at it than the U.S.
The money comes from "state banks and state-owned companies that are encouraged to expand more rapidly instead of from central and local governments (NY Times 11/10). With the bulk of the two year investment in infrastructure, they'll be ready to chug along their new rails, roadways and airports when the economy picks up.
Additionally, investment in low-cost housing, health care and agricultural subsidies are being planned. An important tax revision, called the value-added tax will allow companies operating in China to deduct spending on capital equipment (WSJ 11/10) Encouraging business investment will put China in a competitive position.
The U.S. package is shrouded in vagueness. Congress agreed to $700 billion to help strengthen banks, but does not direct the financial institutions to provide new lending or invest in U.S. projects.
The markets in Asia and Europe responded enthusiastically on Monday. The US market didn't fare as well. Maybe because the Chinese package was everything the US package isn't. It's clear and focused. It's investing in infrastructure. It's a lot of money backed by a time table and resources. And there's no question that China can pay for it as they sit on a pile of cash reserves.
Sources:
http://www.nytimes.com/2008/11/10/world/asia/10china.html
http://hosted.ap.org/dynamic/stories/A/AS_JAPAN_CURRENT_ACCOUNT_ASOL-?SITE=YOMIURI&SECTION=HOSTED_ASIA&TEMPLATE=ap_national.html
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