Chinas stimulus packages have been a massive success while most other countries around the world are in the grip of recession. What are they doing right?
Source
To me it seems like the paradox of thrift is holding back the recovery a lot. Companies that have been given govt money in the US are reluctant to spend. Lending has slowed down big time, which stifles growth. It also points to the fact that tax cuts probably arent the right answer at the moment ( always unpopular, but there you go). People are possibly saving any money they get through tax cuts.
Should more countries look at a socialist model of stimulus package?
Source
Alan Kohler wrote:
...but the stimulus packages of China and the United States have been very similar in both size and intent – it’s just that one has been better targeted and has therefore worked better.
The article also goes onto say a lot about the history of Chinese socialism and quotes Deng XiaoPing saying “Socialism does not mean shared poverty.”Alan Kohler wrote:
A big difference has been that 44 per cent of the stimulus has been in the form of tax cuts, while none of China’s has.
Total size of stimulus, according to Brookings, is $US841.2 billion for the US (5.9 per cent of GDP) and $US204.3 billion for China (4.8 per cent of GDP).
Both countries have poured huge amounts of money into spending on roads and infrastructure, and both have deliberately and massively expanded money supply.
The difference is state control. In China, the money for infrastructure has been distributed to state-owned companies, which have spent it all on hiring workers. In the US, companies have been more careful about hiring and more concerned with repairing their balance sheets first.
More importantly, state-owned banks have been lending money hand over fist. Unlike in the US, there has been a credit boom, caused by Beijing directly instructing its banks to lend.
To me it seems like the paradox of thrift is holding back the recovery a lot. Companies that have been given govt money in the US are reluctant to spend. Lending has slowed down big time, which stifles growth. It also points to the fact that tax cuts probably arent the right answer at the moment ( always unpopular, but there you go). People are possibly saving any money they get through tax cuts.
Should more countries look at a socialist model of stimulus package?