China Unveils $586-billion Economic Stimulus Plan

Sunday, November 9th, 2008

China’s stunning $586-billion (4-trillion Yuan) economic stimulus package, unveiled Sunday evening, aims to give the country’s domestic demand and global GDP a massive shot in the arm. This should also give commodities and commodity stocks a mighty boost. Here are a few excerpts from the Wall Street Journal on the subject:

The announced sum of four trillion yuan represents about 16% of China’s economic output last year, and is roughly equal to the total of all central and local government spending in 2006. New spending of even half that amount would be substantial next to China’s six trillion yuan annual budget for this year.

The plan includes spending in housing, infrastructure, agriculture, health care and social welfare, and features a tax deduction for capital spending by companies. China’s economy won’t be able to absorb so much spending immediately: Economists expect one or two more quarters of slowing growth at a minimum before a rebound could take hold.

With the announcement, China will enter a meeting Saturday of the Group of 20 largest economies with a plan that would dwarf stimulus measures by others in the group, which is convening in Washington to discuss ways to stem a global slowdown in growth.

…

In the new stimulus package, total new investment could be less than the headline figure of four trillion yuan, since the plan does appear, for instance, to incorporate rebuilding programs for the areas affected by May’s massive earthquake. Those have already been allocated one trillion yuan in funds.

Although Chinese officials have been meeting daily on the financial crisis, most observers hadn’t expected leaders to reach final consensus on a stimulus plan until an annual economic-policy meeting scheduled for the end of this month. The rapidity of the response underscored the government’s concern about the growing risks of a real downturn.

A stimulus this large comes once in a generation, or two, as does the opportunity, especially when the margin of safety is this high. As of Friday November 7, 2008, the Shanghai Stock Exchange Index was down 72% from October 16, 2007 peak closing of 6,092 points, having closed at 1,747 points, and roughly 44% below its 200-day moving average of 3,120 points.

Other packages have been relatively in the same ballpark, but set to span much longer periods of time, like ten years. A few years ago, for example, China earmarked 2.7-trillion Yuan ($300-billion) towards augmenting the country’s railroads, a sum to be invested over ten years.

Giving details of the package, Xinhua said China would invest an additional 100 billion yuan in national construction this quarter and would earmark an extra 20 billion yuan next year for reconstruction in areas hit by major natural disasters.

Sectors that will benefit from the extra spending include affordable housing, rural infrastructure, transport networks, environmental protection and technical innovation, Xinhua said.

The cabinet also confirmed a long-awaited reform to the way value added tax is calculated. The result will be to reduce companies’ tax bill by 120 billion yuan a year, the agency added.

This sum, a grand total of 4-trillion Yuan ($586-billion) is set to be dispensed over 2 years. You do the math…this is enormous.

Click for the complete WSJ.com article here [PDF]

Sources: Reuters

WSJ, China Sets Big Stimulus Plan In Bid to Jump-Start Growth

http://online.wsj.com/article/SB122623724868611327.html

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Tags: Agriculture, China, chinese officials, economic policy, Economy, GDP, government spending, Infrastructure, Markets, Yuan
Posted in Markets | 1 Comment »

Where is the Boom, and the Doom?

Tuesday, July 1st, 2008

July 1, 2008 - The first half of this year has been chaotic and confusing for investors given the Subprime fiasco and rapid deterioration of fundamentals in the Banking and Finance sectors, the secular selloff in stocks globally, recession in the US, and soaring oil and commodity prices.

US Global Investors, an American mutual fund company, founded by Toronto native, Frank Holmes, interviews Dr. Marc Faber, author of the Gloom, Boom, and Doom Report, for 1:15 hrs in this highly informative webcast (courtesy of Investment Postcards) aptly titled, “Where is the Boom, Gloom and Doom?”

Please click here to listen to the webcast.

Source: US Global Investors, June 27, 2008.

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Tags: BRICs, China, Commodities, Emerging Markets, energy, Frank Holmes, GDP Growth, globalization, GloomBoomDoom, India, Infrastructure, Marc Faber, urbanization
Posted in Agriculture, BRIC, Brazil, China, Commodities, Credit Markets, Eastern Europe, Emerging Markets, Financials, India, Markets, energy | No Comments »

GE Revenue Growth Lights The Way for Investors

Friday, April 11th, 2008

Today’s disappointing earnings from GE not only highlighted the company’s losses due to its exposure to marked down debt, the poor performance of financial markets, and that the company was caught off guard by the Bear Stearns blow-up; it highlighted that it continues to see strong revenue growth from global market, and in particular, 38% topline growth in revenues from Emerging Markets. GE CEO, Jeff Immelt, was contrite about GE Capital’s writedowns, as well as the slowdown in the company’s Healthcare and Appliances divisions. The stong areas of growth for the company came from the Capital Goods and Infrastructure.

Immelt said the company’s financial services unit was caught off guard by the demise of investment bank giant Bear Stearns and was hampered by the poor performance of the broader financial sector. GE is the parent company of CNBC.com.

…He remains particularly confident in overseas sales. GE revenue grew 38 percent in emerging markets.

“It gives you a sense that outside the United States we’re just not seeing a slowdown yet,” he said. “I don’t think we can assume that everything grows to the sky forever and we’re not counting on that kind of robust international sales, particularly in the shorter-cycle businesses. But the global markets remain robust and the industrial businesses remain robust.”

It was interesting to see Joe Kernen, in advance of the interview, opine that it would be all bad news from Jeff Immelt. The Squawk team did a pretty good job of drilling their CEO, whom they tend to be tough on, since CNBC is owned by GE.

Here is the link to the CNBC story and the video of the interview. Its worth watching if you missed it this morning.

http://www.cnbc.com/id/24063100

People who read this post also read these:

• Why the selloff in commodities and emerging markets?
• The World in 2050
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Tags: de-coupling, Emerging Markets, Infrastructure, Markets
Posted in Markets | No Comments »