China Economy Defies Gravity

It does not make any sense that China’s GDP is growing, unless the government is buying that growth with its stimulus package. If that is true, it is remarkable how well China’s program is working while similar efforts in America appear to be getting nowhere.

An important economic leader in China says he expects second quarter GDP to be up 7.5%. That would be on top of 6.1% growth in the first quarter. According to the AP, the head of China’s central bank research operation wrote, “We forecast second quarter GDP growth will surpass 7 percent or even 7.5 percent.”

China’s exports have continued to fall sharply. The demand in the West and Japan for both consumer goods and capital goods it too low for China’s export machine to recover anytime soon. Signs are beginning to emerge that the global recession is not ending as quickly as had been hoped and may stretch well into next year due to rising unemployment and lack of credit.

China is spending $585 billion to help keep its economic growth on an even keel. That means it is putting money into the hands of the nation’s huge middle class and offering funding for infrastructure initiatives. The fear that the flood of liquidity will cause inflation or a bubble in stock markets and real estate has not materialized, at least not so far.

It has to be disappointing for the US government to look on while stimulus packages in China and other nations like France having an almost immediate effect on job creation and improved economic activity. A year or two from now, it may be clear that the $787 billion that went into the American economy was a large enough sum but it was spent much too slowly.

Douglas A. McIntyre