Wednesday, November 12, 2008

Effects of China's Bailout

Will China's reinvestment of nearly 600 billion dollars into its domestic economy help the current crisis?


Brazil's President Lula told his country in September, "People ask me about the [financial] crisis, and I answer, go ask Bush. It is his crisis, not mine."

Fifty days later, British Treasury Secretary Stephen Timms told a conference of G-20 nations gathered in Sao Paulo, Brazil: "We are in extraordinary times, the global economy is facing shocks which are wholly without precedent and we need a new approach. … It is a global crisis. It therefore requires an international response."

In other words, what goes around, comes around. Global schadenfreude toward a stupid and greedy United States and its subprime mortgage meltdown has rapidly become global concern about how to rescue the world from an all-encompassing financial disaster.


One country's plan to step up
Against that backdrop, China announced a 4-trillion-yuan ($586 billion) stimulus package for its domestic economy this past Sunday. It plans to fund extensive infrastructure construction, aid poor farmers, and cut export taxes.

While China's plan has clear beneficiaries, and should help keep more laborers in their jobs and prop up domestic consumer spending, the most important (and underreported) aspect of the plan is how it will fundamentally change the economic relationship between the U.S. and China.

Read On

After the United States' endorsement of socialism for the rich and capitalism for the poor last month, I was wondering when and how China would respond to the global crisis.

While I'm very skeptical of any of these bailout plans achieving their desired effects, I like the idea of China breaking free a bit from being the world's export manufacturing hub. Creating more opportunity for independent growth within China seems to be a step in the right direction.

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