The Great Economic Stimulus of China

Tag price, US$ 586 billion. That is the amount the People’s Republic of China is willing to shed off its coffers in order to stimulate their economy, which now stands the fifth biggest in the world, back into position of strength once more. Despite growing 9 percent in GDP last quarter, which is incidentally the slowest in five years, the Chinese government is taking no chances.

The move resulted to a buying frenzy in Asia-Pacific and European stocks yesterday and even the Philippine Stock Exchange joined the fray rising by over 70 points. This translated to upside movements in Wall Street earlier in the session last night Manila time before eventually succumbing to negative territory on overwhelming negative reports on corporate troubles such as the GM downgrade and the Circuit City bankruptcy.

Nevertheless, the move is seen to pump up the Chinese economy by inducing domestic consumption. Although the stimulus package is spread through a number of years, it is seen to bolster infrastructure spending and social welfare projects. This means more jobs for construction especially in the rural part of China. This is also a good measure since it would partially ease the migration of rural folks to the urban centers, which has brought tremendous pressure on resources in the likes of Shanghai and Beijing.

The Philippines is expected to keenly watch how this would turn out for the Chinese economy. The Philippines and China have forged several infrastructure projects in the past and others are even still in the pipeline. Since this would mean China will focus on spending domestically, will their projects in the Philippines be put on hold? Interestingly, a similar policy could be in the offing with the upcoming Democrat administration in Washington. President-elect Barack Obama, during his campaign, focused on a much more internal spending policy as a promise to get the US economy back on track.