The Chinese recovery is no recovery at all. It is the product of a $585 billion stimulus package for a nation that has a GDP of $4.4 trillion. The US stimulus program, by way of contrast, is $787 billion against a $14. 3 trillion GDP. The totalitarian communist central government can push its investment in the economy quickly. The American democratic system is burdened more substantially with red tape.
China is making a clever gamble and probably a smart one. It can pour money into its economy be creating increased liquidity to banks which quickly makes it way to consumers and industry. The world’s most populous nation makes it its business to improve its infrastructure rapidly which creates more jobs and revenue for the construction industry. The money that the stimulus passes to consumers is often used to buy good made in China, keeping factory production at an acceptable level.
But, the Chinese gamble is based on a recovery of the wealthy economies occurring before the Chinese stimulus package runs out. A renewal of high demand for exports will allow China to move back to a period of “natural” growth and the government withdraws its artificial support.
China may face the time when exports are not rising quickly and its stimulus packages has exhausted its financing. China has the advantage of having the capital to put a second large stimulus in place and the central government does not have to go to Congress for approval.
Douglas A. McIntyre
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