If You’ve Got It, Flaunt It

Other countries can only drool with envy. China today announced a $586 billion stimulus package – that’s 17% of 2007 GDP. Spread through the end of 2010, it’s still more than 7% of GDP per year. By comparison, the US stimulus package earlier this year was just over 1% of GDP, and after causing a small uptick in spending in Q2 it vanished into the sea of bad news; our recent proposal was for 3% of GDP, and that was at the higher end of the range.

Of course, the stakes for China are very high. GDP growth ranged between 11 and 12% in 2006 and 2007, but the IMF recently cut its estimate for 2009 to 8.5% (down from the 9.3% estimate just a month ago), and according to the New York Times article the annualized rate for this quarter could be as low as 5.8%. While these are growth rates that the developed world hasn’t seen for decades, the huge population migration from countryside to city requires high growth simply to keep unemployment in check. So the Chinese government brought out the heavy economic artillery.

The current crisis has proven, if it needed any proof, that even China is susceptible to the fortunes of the global economy. If it can lead to greater participation by China in the global financial system, including institutions like the IMF, that would be one positive outcome.

3 responses to “If You’ve Got It, Flaunt It

  1. Pingback: RealTime Economic Issues Watch

  2. Isn’t there some question as to how much of this is represented by existing programs re-packaged as part of a “new” stimulus program?

  3. Yes, you’re absolutely right. I don’t know if anyone has compared the stimulus to the previous budget to figure out the net impact. (I certainly wouldn’t know my way around a Chinese government budget.) Still, it’s probably big.