China announces $586 billion stimulus plan

updated 9:53 a.m. ET Nov. 10, 2008

BEIJING - China's massive stimulus package is its "biggest contribution to the world," Premier Wen Jiabao said Monday, as hopes rose that heavy spending on construction and other projects would help support global growth by fueling demand for imported machinery and raw materials.

With Sunday's announcement of the 4 trillion yuan ($586 billion) package, China staked out a bold position as President Hu Jintao prepared for next weekend's Washington meeting of leaders of 20 major economies to discuss a response to the global financial crisis.

"China has really set the pace for expansionary policies elsewhere," said Tim Condon, Asia regional economist for the Dutch bank ING.

Wen, the country's top economic official, said the plan is meant to boost investment and consumer spending, maintain export growth and promote corporate competitiveness and financial reform, state television reported on its national evening news. It said he made the comments at a meeting of government leaders.

"We must implement the measures to ensure a fast and stable economic development," Wen said in comment read by an announcer. "They are not only the needs of the development of ourselves, but also our biggest contribution to the world."

The plan calls for higher spending through 2010 on airports, highways and other infrastructure, more aid to the poor and farmers and tax cuts for exporters. That could boost demand for iron ore from Australia and Brazil, factory and construction equipment from the United States and Europe and industrial components from throughout Asia.

"Faster growth in China will be better for its neighbors. For every country in the region, it's either their top trading partner or is on the way to becoming the top," Condon said. On a global scale, "countries that supply capital equipment look like they will be the front line beneficiaries of this package."

Asian stock markets surged Monday on news of the plan. Japan's Nikkei index rose 5.8 percent and Hong Kong's Hang Seng index gained 3.5 percent. In China, the Shanghai Composite index jumped 7.3 percent to 1,874.80.

The dramatic Chinese plan was motivated by growing government alarm at an unexpectedly sharp downturn in the country's fast-growing economy that raised the threat of job losses and social unrest.

China's economic growth slowed to 9 percent in the last quarter, down from last year's stunning 11.9 percent growth and its lowest level in five years. Export orders have fallen sharply as global demand weakens, leading to layoffs and factory closures.

Analysts have slashed forecasts of next year's economic growth but said Monday that with the new stimulus it should be at least 8 percent.

MORE FROM ECONOMY IN TURMOIL

Economy in Turmoil Section Front

A leaner GM zooms out of bankruptcy Consumers' mood sours in early July Trade gap narrows to 9-year low in May Tens of billions remain in bank bailout fund Weekly jobless claims drop unexpectedly No second stimulus, Obama official says Traffic congestion dips as economy falters One casualty of the recession: U.S. mobility Credit card delinquencies at record high Service sector shrinks less than expected Economy in Turmoil Section Front   Add Economy in Turmoil headlines to your news reader: