China’s leaders say the plan to keep their stimulus package in place, make capital available at low-cost, and work to increase consumer spending within the country’s borders will last into next year.
The news should be positive for both the US and China.
China’s manufacturing capacity is still growing rapidly helped by large government investment. This effort is increasing the size of the middle class in the world’s most populous nation by providing relatively high-paid jobs. If China can funnel the spending of these tens of millions of people into the purchase of consumer goods made inside the country, the government will be creating a cycle where China buys what China builds. When China’s middle class was smaller a decade ago, that was not possible.
There have been growing concerns that China’s rising manufacturing capacity could flood the world with its exports causing possible deflation in the West and trade wars as wealthy nations work to protect their own industries from inexpensive goods.
The US could reap a major benefit from a rise in Chinese consumer spending. American GDP is being undermined by falling consumer spending caused by unemployment and tight access to credit. This has pushed many economists to argue that the US must return to being a country that relies more on exports for GDP growth. Rising Chinese consumer activity should creat an increase in the country’s imports from the US.
The Chinese stimulus could end up doing more for the US than the $787 billion one passed by Congress.
Douglas A. McIntyre
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