China unveils $586bn stimulus package to boost economy


In a bid to boost its weakening economy, the Chinese Government has announced a four trillion yuan (£374 billion, $586 billion) economic stimulus package.

In the last two months alone, China’s central bank has cut interest rates three times in an attempt to boost the economy, which has been hit by falling exports.

The State Council announced the package over the weekend following last Wednesday’s meeting led by Premier Wen Jiabao. A statement by the State Council said in expanding investment, we must be fast and heavy-handed.

It is hoped the package will boost the economy, partly through employing millions of workers to build a large amount of new projects and partly by encouraging Chinese to spend more.

Stock markets across Asia responded well to the news, with the Shanghai Composite Index gaining 7.2%, Japan’s Nikkei 225 was up 5.8% and Hong Kong’s Hang Seng index up 4.1%.

While the stimulus package of $586 billion is not as large as that of the US, who recently announced a $700 billion bailout, it is considered a hefty sum considering that the Chinese economy is only one quarter the size of North America’s.

Timothy Bond, chief Asian economist at Merrill Lynch, believes the Chinese stimulus package will prevent a sharp slowdown.

While the Chinese economy has experienced massive growth over the last year, it is now showing signs of slowing. GDP expansion fell to single digits for the first time this year.

In related news, Japan recently revealed a second stimulus package for the country. The 5 trillion yen (£31 billion, $51 billion) package is an attempt to stimulate the world’s second largest economy and include tax cuts, funding for care of children and the elderly and loans for small businesses.

The package is Japan’s second in as many months after the Prime Minister revealed a stimulus package worth 11.7 trillion yen at the end of August.

Furthermore, earlier this month, South Korea became the latest country to announce a stimulus package to boost its economy.

The package, worth around 14 trillion won (£6.6 billion, $10.9 billion), was announced by the Ministry of Strategy and Finance in a bid to stave off a recession. Eleven trillion won is to be pumped into public projects, while three trillion won is for tax cuts to boost spending.

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