A Stimulus Package That Works: China’s 7.9% GDP Growth

China’s GDP rose 7.9% in the second quarter, which is especially impressive since the figure was only 6.1% in the previous quarter.

Economists will voice a number of concerns about the growth. It is artificial, because of China’s $585 billion stimulus. package. The expansion could lead to bubbles in the stock and real estate markets because of the tremendous liquidity and credit going to business and individual consumers. The stimulus may also mask the real effects of slow exports and factory production.

The US should be so lucky, no matter what the critics have to say about China’s success.

The 7.9% GDP improvement is based on the real success of the Chinese stimulus efforts. The country’s program was announced at about the same time as the US $787 billion package. The American effort has barely taken hold and most economists do not believe it will bear any real fruit until well into next year.

The suddenness with which the Chinese stimulus has worked may be a testament to the benefits of having a central, totalitarian government. It probably also points to the fact that the plans for the stimulus package of the world’s most populous nation are not long term. China appears to be gambling that if it can sustain its economy for another year, a global recovery will take over and supply the necessary demand for goods that will keep a recovery sustained.

The American stimulus package is more carefully crafted and has goals that are based on how the government wants the economy to look in 2010, 2011, and 2012. It is based on the oft mentioned goal of adding or replacing 3.5 million US jobs. Without saying as much, the American stimulus is based on the idea that a recovery may not take hold for a year or two and that money will have to consistently pumped into the economy over that time period.

The China stimulus package is working better than the American one, so far. If US unemployment goes well above 10% and stays there for a year, the edge the Chinese got from their program will be permanent.

Douglas A. McIntrye