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[bob ford <bobford79 AT yahoo.com>]

I read an article by Nouriel Roubin, last week, indicating that something 
like this was in the works (he is quoted in this article from today, also),
Other than the numbers, the most telling comment to me was that China is no 
longer worried about tamping down inflation.  They hold an awful lot of our 
debt.................bobford


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Notes On The News With Paul Maidment
China Announces Massive Stimulus Package
Paul Maidment, 11.09.08, 2:07 PM ET

  
 
 More From Paul Maidment   
 

  
 
Ever since it reported sharply slower economic growth in the third quarter 
(9% vs. 10.4% for the first half) China's top officials have been signaling 
that an economic stimulus package was coming to boost domestic demand and 
that the tight monetary policy imposed earlier this year would be eased. 

Today, China's media announced that the State Council, the country's highest 
decision-making group, had approved at a meeting on Wednesday a package of 
capital spending plus income and consumption support measures. This confirms 
that damping down inflation in a runaway economy is no longer the policy 
priority. The top economic concern is now arresting the rapid slowdown in 
growth as a result of the slumps in China's exports in the wake of the global 
financial crisis (see: " Cold Christmas For China's Manufacturers" and " 
Economic View From Shenzhen").

Four trillion yuan ($586 billion) will be spent on upgrading infrastructure, 
particularly roads, railways, airports and the power grid; on raising rural 
incomes via land reform; and on social welfare projects such as affordable 
housing and environmental protection.

The package also wraps in some of the disaster reconstruction spending from 
last winter's abnormally severe weather, the Sichuan earthquake in May and 
other natural disasters. It ties together many policy initiatives already 
underway as the country's leadership tries to close a potentially 
destabilizing income gap between the rich coastal cities and the poorer 
interior countryside.

In addition, China indicated a shift to "moderately easy" monetary policy. 
After three interest rate cuts since mid-September, the easing in monetary 
policy was a given. Lending limits on commercial banks are also being lifted. 
A long-expected change in the way value-added tax is administered will 
provide tax cuts, accounting for $17.5 billion of the package's total, the 
state news agency Xinhua says. 


The sums involved are substantial. By comparison, the U.S. pumped $100 
billion into its economy in the summer via tax rebate checks. Germany has 
just announced a $65 billion stimulus package. Both economies are larger than 
China's. 

China's stimulus package amounts to nearly 15% of annual economic output 
spread over barely two years. Another yardstick of its scale: In the Asian 
financial crisis of 1998, China responded with a package worth just 1.2% of 
gross domestic product.

Beijing has little choice. As our columnist Nouriel Roubini wrote on Nov 6:

"In a country with the potential growth of China, a hard landing would occur 
if the growth rate of the economy were to slow down to 5% to 6%, as China 
needs a growth rate of 9% to 10% to absorb about 24 million folks joining the 
labor force every year--it also needs to move about 12 million to 14 million 
poor rural farmers every year to the modern industrial and manufacturing 
urban sector. 

The whole social and political legitimacy of the Communist Party's regime 
rests on continuing to deliver this high-growth transformation of the 
economy. Therefore, a slowdown of growth from 12% to 5%-6% would be the 
equivalent of a recession for China. And now a variety of macro indicators 
suggest that China is indeed headed toward a hard landing." 

Four trillion yuan are intended to cushion the fall.

http://www.forbes.com/business/2008/11/09/china-stimulus-economy-biz-cx_pm_1109notes.html