China’s giant $585 billion (4 trillion yuan) economic stimulus package is showing signs of taking effect. Economists now project that China will be the likely leader of an elusive worldwide economic recovery.

Chinese banks heeded the government’s call to extend more credit to support the economy as they issued $237 billion (1.62 trillion yuan) in new loans in January, up a whopping 101% year-over-year, the People’s Bank of China said. The surge provides evidence that state-owned banks are heeding the government’s call to extend more credit to support the economy.


"The economy is bottoming,” Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong, told Bloomberg.

Prices for China’s imported iron ore has climbed 28% since October. Hot-rolled steel has surged 41% and the Baltic Dry Index, or shipping costs for commodities, has more than doubled since Jan. 28.


Even if the global recession lasts years, China has the ammunition to maintain growth, said Merrill Lynch’s Lu. It has public debt of only 18.5% of gross domestic product, foreign currency reserves of $1.95 trillion, and a balanced budget.

"China has perhaps the deepest pockets in the world,” Lu said. "It can relentlessly ramp up spending to create jobs and meet its growth target.”

Western analysts who have put China in the same doom-and-gloom boat as the US and the rest of the G7 have been wrong, as we have suspected. China's situation is simply hugely different. It's exposure to downturn came not from an over-extended banking system, but from dependence on exports to the West. Certainly, shutting that down has been the source of painful dislocations. But this is not place China into the same morass as the US. China's main challenge (and that of other surplus countries) is now to pick up that consumption slack. China has always had a sporting shot at doing that, for three reasons: (1) its banking sector was not decimated by Western toxic investments, (2) it has accumulated huge surpluses which can be mobilized for development, (3) it is starting from a very low base of domestic consumption, which gives huge room for growth.

The implication is that China will return to robust growth and lead the world out of recession (really, Depression). In addition, a floor has now been put under commodity prices and they will likely resume their long term bull market (indeed, they seem to have reversed already).

This isn't so surprising; different countries have different situations. Even in the Great Depression, many countries emerged from the downturn quicker than the US. It all depends on your starting situation and how the crisis is managed.


mortgagemess at 10:29 2009-02-17 said:
Ok..so the China banks LENT money OUT instead of HOARDING it like the US BANKS..maybe we should use some of the tarp money to send our Bankers over to learn Chinese! Permalink

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