http://www.nytimes.com/2009/07/17/business/global/17gdp.html?_r=1&emc=eta1
China's second quarter GDP growth figures, released this morning in Beijing by the National Statistics Bureau, are at 7.9%. The announcement (chronicaled in today's NY Tmes attached) is a pleasant surprise to international economists who were skeptical of China's ability to quickly offset a major contraction in export activity.
There is a general consensus among China experts that that country's GDP needs to grow at 8% per year because, for each 1% drop in that rate of growth, 22 million citizens face unemployment. Strong auto sales (which now exceed U.S. auto sales), housing sales, a strong stock market, and strong retail sales have all combined to move economic growth much more rapidly than expected.
While some analysts have warned that China's growth also holds serious risks because of an explosion of bank lending that could easily lead to non-performing loans, overly aggressive infrastructure spending that could be wasteful, and policies that do not favor private business, I would prefer to see the situation as a "half full glass."
Many economists and statesman have pointed out that, before there is a "G-8", or a "G-20", there is a "G-2". The "G-2" are China and the U.S. If the G-2 have economies that reflect appropriate GDP growth rates, the rest of the world's economies can depend on a modicum of stability.
China's first quarter gowth was 6.1%. This current announcement, at 7.9%, shows a positive trend even if the numbers are close to accurate, or are later revised.
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This is a stark example of a "proper" stimulus directed primarily towards job creation instead of political pet projects. China directed almost $600 billion towards infrastructure, including power generation (coal, nuclear, wind, and solar). Adjusting for purchasing power (PPP), this would be equivalent to a $1.8 trillion stimulus in the USA.
ReplyDeleteIn contrast, the Obama stimulus package directed less than 10% towards infrastructure, or approximately $75 billion. This disparity is one of the reasons many economists (such as Krugman) are declaring the need for another stimulus for the economy to recover. But, two main questions need to be addressed.
Does anyone actually believe that a second stimulus package will be any better directed towards job creation, than the first one?
China paid for their stimulus out of savings. Where does the USA get the money, when the USA has no savings (actually deep debt) and the rest of the world (except for China) do not have enough remaining savings to bankroll a second stimulus?
These two questions have Krugman ducking faster than Frazier ever did in Manila.