Economists debate the impact of the U.S. economic stimulus plan, and if a second round of stimulus is needed. But there’s no doubt that China’s plan is working for us.

In the many rounds of second-quarter earnings calls, the CFOs of U.S. companies are lauding how well they are doing in China. Caterpillar Inc. (NYSE: CAT) topped Q2 expectations, saying that China’s fiscal stimulus is beginning to work for them. United Technologies Corp.(NYSE: UTX), expects strong second-half China results, as the economy there begins to recover.

None that we have heard have given credit to the U.S. stimulus plan for their better-than-expected earnings results.

The anecdotal evidence is piling up daily; China no longer has a recession threat. Technology research firm iSuppli expects a display market to  recovery in 2009, partly tied to the China stimulus package. Peabody Energy Corp. (NYSE: BTU) sees record net coal imports flowing into China, due to the economic upswing. Even Ford Motor Co.’s (NYSE: F) sales are up 14% in China in the first half, as consumers there continue to spend.

China stimulus may be the biggest untold story of the earnings season. It’s provided big bang for the buck — er, yuan. Economic growth is not quite  back up to double-digits, but it rose 7.9 percent in Q2, following its stimulus implementation.

The growth implied by 12-month forward earnings estimates in China is now 23.5 percent, up from single-digit expected growth back in March. It’s fair to say that a very large part of the increase is a direct result of a stimulus package that was 16.7 percent of that country’s GDP. In comparison, the U.S. has spent about 5.7 percent of GDP on its stimulus package.

Implied forward earnings growth of U.S. companies is only 7.6 percent. But that’s up significantly from an implied earnings contraction back in March.

The financial sector in the U.S. has played a big role, and that had virtually no Chinese influence. Companies including  Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC)  reported better-than-expected results vs. analyst estimates that remain all over the map.

But for most other sectors, China stimulus may be the biggest reason for the earnings outperformance .

Mike Tarsala

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