Khilafah.com

The Age

Peter Martin and John Garnaut

THE ailing global economy is set to receive a shot in the arm from China, with a massive $849 billion stimulus package aimed at keeping the emerging economic superpower growing.

The 4 trillion yuan plan, equivalent to about 20% of China's GDP, is the biggest injection of cash by a government in history, and is expected to have flow-on benefits for other economies including Australia as they battle to avoid recession.

Regional sharemarkets rallied in response to Beijing's announcement, with shares in Australian mining giants BHP and Rio Tinto soaring more than 7% in expectation of a better outlook for their exports.

Prime Minister Kevin Rudd hailed the Chinese plan, telling Parliament: "This is an extraordinary package of significance not just to this economy but also to the economy across wider East Asia and the world.

The announcement came hours before the Reserve Bank of Australia released the most gloomy local forecasts to date, predicting growth this financial year of just 1.5%.

The Chinese package is expected to focus overwhelmingly on construction. A statement by China's State Council said the money would be spent on 10 projects including low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from disasters.

The announcement caught economists and analysts by surprise. Many had been cutting China forecasts after GDP growth slipped to 9% in the year to the end of September.

Huge numbers of workers have since lost their jobs, and consumer and investor sentiment has recently plummeted.

But yesterday there were renewed signs of optimism. Zhang Yongsheng, a senior researcher at the State Council's Development Research Centre, said: "China will likely be an exception during the world recession, maintaining high growth, as it did after the East Asian financial crisis in 1997."

CommSec economist Craig James said the package showed China was "not taking the global slowdown lying down. "The US is fading in importance," he said "The most significant developments over the next five to 10 years will be industrialisation in China and India, not the US-driven cyclical slowdown."

The Reserve Bank's quarterly statement, prepared ahead of China's announcement, said Chinese export growth was slowing significantly, and that industrial production was growing at its slowest pace in six years.

It said the economies of Australia's major export customers would grow by a weighted average of just 1% in 2009 - "which would generally be considered a global recession".

Its forecast for Australia is more gloomy than those of the Treasury and the International Monetary Fund, and would see the economy crawling at its slowest pace since 1992.

The Reserve is predicting growth of 1.5% in the current financial year, and just 1% excluding the rural sector. By contrast, the forecast released by Treasurer Wayne Swan last week was for growth of 2.0%, while the International Monetary Fund predicted 1.8%.

The Reserve forecast is not directly comparable with the others, as it describes growth through the financial year rather than from one year to another. Even allowing for the difference, the Reserve is gloomier. It does not expect Australian growth to climb back to 3.0% until mid-2011, and inflation will not return to the top of the target zone until December 2010.

The Reserve believes Australia's terms of trade are about to fall sharply, undoing the jump of 20% in the last year.

It says household spending will grow "only modestly" this financial year, even with the Government's $10.4 billion economic stimulus package.

And the latest housing finance figures suggest the Reserve's first interest rate cut of 0.25 percentage points in September had little effect. Loan approvals slid a further 2.7%.

 

 

Wall Street's early gains cancelled out

The Times

China's £375bn investment deal lifts US shares in early trade but company losses temper gains

Rosie Lavan and Leo Lewis

Shares in New York soared in early trading today as China's four trillion yuan (£375 billion) economic stimulus plan and the promise of extended rescue packages in the US lifted markets despite company collapses and rising corporate losses. But the market's early gains were reversed as investors remained cautious about the domestic outlook.

The Dow Jones industrial average closed down 0.82 per cent or 73.27 points at 8,870.54 after opening over 200 points higher, following strong sessions in London and overnight across Asia.

In addition to the announcement of China's surprise plan to pump £375 billion into the world's fastest growing economy, there are hopes that fiscal packages designed to boost the US economy could be extended.

A plan, which could total as much as $300 billion, is expected and it is also thought that the existing $700 billion government bailout, announced in September, might be extended to enable America's struggling car manufacturers to draw on the support.

Barack Obama, America's president-elect, is known to have been supporting such a move.

A new package could include plans to increase unemployment benefits while the US food stamp programme, championed by Nancy Pelosi, the Speaker of the House of Representatives, might be extended.

Food stamps, which date back to 1943, are part of a federal programme that gives very low-income families an allowance to spend on groceries.

The rally on Wall Street was short lived as company results spooked investors.

Circuit City, America's second-biggest electrical retailer, announced today that it had been forced to file for Chapter 11 bankruptcy protection. It is the first major US retailer to do so.

Fannie Mae, the US mortgage giant which was rescued along with Freddie Mac in September, posted a third-quarter loss of $29 billion.

Google slumped $12.36 to $318.78, its lowest price since October 2005 after Barclays analysts cut fourth-quarter revenue estimates for the company, saying the search-engine business has deteriorated.

And shares in General Motors dropped by more than 20 per cent, after analysts at Deutsche Bank said that the carmaker might not be able to fund its operations past December. On Friday, GM reported a massive loss.

In addition, the US Government today moved to rescue of the insurance company AIG for a second time, taking a $40 billion stake in the company as it unveiled third-quarter of $24.5 billion.

Earlier today, China's plan sent mining stocks soaring in London by over 130 points, though it calmed to a 78.2 point increase by mid-afternoon.

There are expectations that construction machinery specialists and commodity stocks will benefit from China's stimulus plan which it is hoped will be directed at public projects and other job-intensive infrastructure schemes.

In Japan, Tokyo's Nikkei 225 index climbed by 5.8 per cent, led by construction specialists despite new data that revealed that orders for machinery had fallen between July to September at rates not seen in a decade.

Over the weekend, China's State Council unveiled an enormous package of spending, amid signs of a dramatic slowdown in the past few weeks. The prospect of Chinese government-led demand for metals and other raw materials for construction offered a much-needed fillip to commodity prices.

< Prev		Next >