China pumps in 600 Billion into economy.

[ray243]

BEIJING (Reuters) - China's cabinet has approved a massive stimulus package worth 4 trillion yuan ($586 billion) through 2010 to boost domestic demand, the official Xinhua news agency said on Sunday.

Investments will be targeted at infrastructure, social welfare and other key sectors as part of an "active" fiscal policy, Xinhua said.

It did not say how the extra spending would be financed.

China ran a consolidated budget surplus in the first half of the year of more than $170 billion, but tax revenue growth is slowing sharply as the economy reels under the impact of the global credit crunch.

The cabinet also announced an explicit shift in monetary policy, which it now described as "moderately easy."

The People's Bank of China has already cut interest rates three times since mid-September and scrapped lending quotas in a bid to support the economy.

Lending to small and medium enterprises will be increased as part of the plan, Xinhua said.

Officials have been flagging measures to pump up demand since gross domestic product growth slowed unexpectedly sharply to 9.0 percent in the third quarter from 10.4 percent in the first half.

Indicators for October have been even weaker.

Giving details of the package, Xinhua said China would invest an additional 100 billion yuan in national construction this quarter and would earmark an extra 20 billion yuan next year for reconstruction in areas hit by major natural disasters.

Sector that will benefit from the extra spending include affordable housing, rural infrastructure, transport networks, environmental protection and technical innovation, Xinhua said.

The cabinet also confirmed a long-awaited reform to the way value added tax is calculated. The result will be to reduce companies' tax bill by 120 billion yuan a year, the agency added.

(Editing by Alan Wheatley and David Holmes)

That is equalivent to US pumping 2.5 Trillion dollars in one go, directly to the people, as compared to the companies.

[Pivra]

+rep for China

[Viking Prince]

That is equalivent to US pumping 2.5 Trillion dollars in one go, directly to the people, as compared to the companies.

But it is not 'in one go' as you put it. It is also unclear how much of this is real or magic wanding of not collecting officially taxes that were not going to collected at all, how much is simply accelerating public spending versus new spending, etc. We will need to get more info before we can compare this to developed country actions. It is a good sign that the Chinese economy and government is maturing though. Glad to hear of it.

[Exarch]

dats good
chinese infrastructure expanding as usual is good for the aussie economy also,
+rep to china

[Mithie]

This is not needed, not neccessary, and frankly, a stupid move.

[Dunecat]

Way to go China.

Also, a socialist market economy is by far the weirdest system ever.

[Martin N]

This is not needed, not neccessary, and frankly, a stupid move.

Like the usa "bailout" ?

Chinese stocks have risen hugeley from this move, Our stocks went down sharply even more with ours, because our bailout did nothing, all that money did was nationlize our banks under the governments control, effectively consolidating them, and the rest went out in bonuses to ceo's and employees for there job well done in trashing our financial system.

[Gelgoog]

Like the usa "bailout" ?

Chinese stocks have risen hugeley from this move, Our stocks went down sharply even more with ours, because our bailout did nothing, all that money did was nationlize our banks under the governments control, effectively consolidating them, and the rest went out in bonuses to ceo's and employees for there job well done in trashing our financial system.

what? no, what it did was buyup all those toxic loans and allow for day to day paper transfers. This was needed to allow daily commerce from collapsing

[Martin N]

what? no, what it did was buyup all those toxic loans and allow for day to day paper transfers. This was needed to allow daily commerce from collapsing

Paper trading has stopped anyway, Our stocks are getting worse, the bailout was nothing more than looting the treasury to consolidate our banks into a socialist system, Other than that also to pay massive bonuses to banks employees and ceos, sureley you didnt think buying some "toxic loans" would stop it ? the problem is the fed, the us government has been pumping over 2 trillion a year in liquidity into banks and the market, this created the housing bubble, and it burst when hyperinflation finally caught up, and today you see the result. It really is nothing more than looting our treasury as i say congress doesnt even get told about whats in the document for the bailout, the first bailout which got voted against, had nothing detailing what wthey was going to do with the money, some dems and repubs was threatened with martial law if they didnt pass it (possible now with habeus corpus destroyed, check google if you dont believe the martial law point), it pays massive bonuses to heads of the banks HERE over 70 billion of it! thats 10% of the bailout on bonuses. i mean bonuses for what ? theyve caused a biggest financial downfall in a century

[Chukada1]

This is not needed, not neccessary, and frankly, a stupid move.

When all the world's money was being directed to Great Britain during her golden age, that money was put into infrustructure and housing.

When all the world's money was being directed to Spain during her golden age, it was not put into infrustructure or housing.

Guess which one did better economically?

China is pulling off a Victorian.

[Valiant Champion]

Wont this reduce the value of Chinese currency??

[Martin N]

Not really, It doesnt specify where they are getting the money do this, most probably from taxes, and the stocks in china have already risen on this news, They are putting the money into the infastructure itself, this is where the money is really needed, it gets the economy going again, so no the value of chinas currency will not go down will most probably go up to deflation, i mean hell we in the usa have been printing alot of money out of thin air for just under 100 years and its taken this long to destroy the currency Well, the currency was doomed the day it stopped being back by gold, 1970 odd, but our $ now is worth 2 cents to what it was before the fed due to way overprinting and inflation

[Mythos]

Not really, It doesnt specify where they are getting the money do this,

They have massive cash reserves.

[C-Rob]

They have massive cash reserves.

Yep, maybe without a stupid war somewhere draining their resources, they have stuff that we don't- a military that's not being a bully, leaders who don't suck, and a growing economy.

[Fabolous]

That is equalivent to US pumping 2.5 Trillion dollars in one go, directly to the people, as compared to the companies.

Except the money here isn't going to people, it is going to companies and government organizations, and it is over the course of two years, not in one go.


Also, even with where this money is targeted, the only bit that will be helping the average rural Chinese, the ones who really need help because they have not benefited at all from China's recent boom, is the rural infrastructure part. Except the Chinese government constantly announces funds for rural infrastructure and not much seems to come from it, outside the massive highway system that was recently completed. But its effect for rural areas it is close to is debatable. And for those it isn't close to, it helps them not at all.

[Valiant Champion]

Stocks are taking a hit again. Apparently China is taking a beating. Also if I am not mistaken the Chinese government had a 175 billion surplus. So it will be in the hole and have to go into the red to pass the bail out.

One other thing that comes to question is if or when many countries will default on their government debts. What would happen I wonder??

[Mithie]

Also, even with where this money is targeted, the only bit that will be helping the average rural Chinese, the ones who really need help because they have not benefited at all from China's recent boom, is the rural infrastructure part. Except the Chinese government constantly announces funds for rural infrastructure and not much seems to come from it, outside the massive highway system that was recently completed. But its effect for rural areas it is close to is debatable. And for those it isn't close to, it helps them not at all.

China has adopted the very captalist stance of - if the rural Chinese want to get rich, they can work hard at it and get rich.

Hence, most of the real rich Chinese moguls today came from rural China, because they have the biggest motivation to get rich.

True competitive captalism at work.

Why should the rich's tax money go to help the rural poor? What do you think this is, Obamanomics?

[sephodwyrm]

Why should the rich's tax money go to help the rural poor?

I do believe that investing in infrastructure allows for the growth of scale-up economics, accelerate resource acquisition and reduce transport attrition. The rich do benefit from having a nation state, and the nation state can utilize the tax money in ways she deems appropriate (even benefiting poor rural regions). Roads and railroads is appropriate. I don't believe in giving handouts to rural area. But roads to rural areas that allow them to transport their wares or produce for sale is not too socialist...even the military would want to have those roads built.

[Panzerbear]

good for China. unlike Americans, they can actually afford it .

[Exarch]

cool, everyone wins
the chinese get their improved infrastructure and australia can continue selling them ore which allows them to improve their infrastructure etc