China to embark on its own New Deal
China intends to use its $586 billion stimulus package on railways, airports and other infrastructure. Scott Tong reports that the money will boost investor confidence, but won't save the world.
An investor holding his child views stock prices at a securities company on Nov. 10, 2008, in Wuhan, China. (China Photos/Getty Images)
More on The Economy, International, Asia, America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: It's a little known fact that AIG has its roots in an insurance company originally started in China almost 90 years ago. Now the financial crisis in which AIG's playing such a big part has come full circle. With the financial crisis hitting global growth, and its own economy off 30 percent, this weekend Beijing announced its own bailout plan. Here's Marketplace's Scott Tong from Shanghai.
Scott Tong: Massive, whopping, huge. Investor types unpacked their adjectives today to describe China's $586 billion stimulus. That's 15 percent of the entire economy. Currency strategist Patrick Bennett of Societe Generale says China is pulling more than its share in the world.
Patrick Bennett: Some of the other stimulus packages have been around 3, 4 or 5 percent. So, this is considerably more and I think it will be very well received.
Perhaps best received by countries that export raw materials to China. That's because Beijing plans to build everything from new train tracks to hospitals to airports. And it will import a lot of energy and minerals to do it. Jing Ulrich is managing director at JPMorgan China. She calls this stimulus the New Deal with Chinese characteristics.
Jing Ulrich: A lot more infrastructure needs to be built. Especially railways, power grids. This will translate into real economic benefits. This is clearly not building bridges to nowhere.
The IMF says China is the largest contributor to global growth today. But is it big enough to rescue the whole world? Again, currency man Patrick Bennett.
Bennett: No, I think all these measures will help to re-engender some confidence amongst the investor population. But its ability to change outlooks dramatically on a short term horizon are not going to happen.
In any event, Bennett expects extra stimulus from other countries, as world leaders prepare to meet this weekend in Washington. He thinks combined efforts would go a long way.
In Shanghai, I'm Scott Tong for Marketplace.
Comments
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From Boston, MA, 11/10/2008
As I understand it, China will fund its infrastructure work differently from the way almost all the rest of the world's governments fund such work: they will issue fiat money to pay workers and suppliers, rather than incurring debt by issuing bonds.
Both are inflationary, but paying with fiat money means no future interest payments.
Presidents from Jefferson to Jackson to Lincoln urged that we use fiat money rather than debt. The bankers like the interest payments that debt requires.
When will we start listening to those Presidents rather than the bankers, and do what the Chinese are doing?
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