The international discussion on China's economic stimulus package has taken a specific form in the US. In addition to representatives of US international financial institutions such as Jim O’Neill, chief economist of Goldman Sachs, the US economist who has most clearly argued that China's economic stimulus package would be successful was Mark Weisbrot of the Centre for Economic and Policy Research. Most US economists and writers predicted failure for China's package.
It is therefore a matter of considerable interest to note that on 17 September the New York Times printed a front page article by Keith Bradsher with the self-explanatory title 'Recovery Picks Up in China as U.S. Still Ails'. This article notes:
‘Just eight months ago, thousands of Chinese workers rioted outside factories closed by the global downturn.
‘Now many of those plants have reopened and are hiring again. Some executives are even struggling to find enough temporary staff to fill Christmas orders.
‘The image of laid-off workers here returning to jobs stands in sharp contrast to the United States, where even as the economy shows signs of improvement, the unemployment rate continues to march toward double digits.
‘In China, even the hardest-hit factories — those depending on exports to the United States and Europe — are starting to rehire workers. No one here is talking about a jobless recovery.
‘Even the real estate market is picking up. In this industrial town 90 miles northwest of Shanghai, prospective investors lined up one recent Saturday to buy apartments in the still-unfinished Rose Avenue complex. Many of them slept outside the sales office all night...
‘The confidence stems from China’s three-pronged effort — a combination of stimulus, liberal bank lending and broad government support for exports.
‘The Chinese central bank said the country’s economy surged at an annualized rate of 14.9 percent in the second quarter. The United States economy shrank at an annual rate of 1 percent in that period.
‘“So often China and the U.S. are mixed together as being in the same situation, and that is totally wrong,” said Xu Xiaonian, an economist in Beijing with the China Europe International Business School...
‘‘But with more centralized economic planning than the United States, China has been able to disburse its stimulus much faster, turning it into new rail lines and highways.
‘China’s finance ministry announced in late June that half the $173 billion in central government spending had already been allocated to specific projects. The White House said in early July that a quarter of the spending authority and tax cuts in the $789 billion American stimulus had been allocated or used.
‘But even more key to China’s recovery, economists say, are two other government efforts that are paying big dividends: looser lending and export supports.
‘The state-controlled banking system here — which breezed through the global financial crisis with minimal losses as American financial institutions reeled — unleashed $1.2 trillion in extra lending to Chinese consumers and businesses in the first seven months of this year. That money is financing everything from a boom in car sales, up 82 percent in August from a year earlier, to frenzied factory construction.
‘Beijing also has given huge tax breaks and other assistance to exporters...
‘Indeed, subsidies abound at all levels of government: the Wuxi municipal government just offered up to $146,000 to each local business that increases exports in the last three months of this year...
'China’s well-capitalized banking system allowed for rapid investment.
‘Chinese banks came into the crisis with enormous excess reserves, the result of three years of tight regulatory limits on lending to prevent the economy from overheating. When those limits were removed, and authorities urged bank executives to lend, the total value of loans outstanding shot up more in the first seven months of this year than in the previous 24 months.
‘By contrast, total loans and leases outstanding at financial institutions insured by the Federal Deposit Insurance Corporation actually fell $249 billion, or 3.2 percent, in the first half of this year.
‘Though Washington has used taxpayer money to bail out American banks, it does not have Beijing’s power to force banks to lend that money to businesses and consumers.
‘As much as a third of the extra bank lending in China appears to have gone into real estate and stock market speculation. But the bulk has gone into investments by companies and local governments, with tangible results'
The article states various short and medium
term concerns - not all employees laid off last year have been
re-employed yet, there is a danger of some asset bubbles etc. Some of
these latter statements are accurate and some are somewhat exaggerated.
Neveretheless, overall, the article is a fair and relatively accurate
assessment of the fact that China's stimulus package, and recovery from
the international financial crisis, is far more successful than the US.
For a leading US newpaper to print so prominently such a frank
assessment is both intellectually honest and striking.
There is now a quite clear shift in international opinion on China's stimulus package. This blog's author has outlined both here and elsewhere the reasons why China's stimulus package would be successful. This is rooted in a correct overall strategy, followed by China and in a different form by some other Asian economies, and is based on correct understanding of the most important long term trends in the world economy. Writers such a Martin Wolf, chief economics correspondent of the Financial Times, argued that China's economic stimulus package would not be successful but have since reveresed their view. The new article in the New York Times indicates a similar process. The fact that China's stimulus package has been successful is now becoming accepted - with only a decreasing number of hold outs such as Morgan Stanley's Stephen Roach, Michael Pettis of Peking University, and Dylan Grice of Societe Generale continuing to argue the opposite.
However while a number of authors have now revised their previous positions, and agree that China's economic stimulus package will be successful, they have not re-evaluated the analytical frameworks that led to the previous errors. This means that such frameworks are likely to continue to produce mistakes regarding the evaluation of new events. Discussion of China's stimulus package, and economic strategy, will therefore continue to be an issue not only of great practical importance for the world economy but of considerable analytical and theoretical importance for assessing future economic events.