- Along with the US, China is among the leaders in announcing fiscal and monetary stimulus to bolster its economy in recent months.
- Chinese Premier Wen Jiabao was expected to unveil additional stimulus measures in his annual address to the legislature. Regardless of what was or not said, Premier Wen's speech reaffirmed the Chinese government's commitment to support economic growth.
- Fiscal (and monetary) stimulus continues to grow across the global economy. Stocks will reflect an economic recovery far before the data, so looking for broad signs of recovery before jumping into stocks will mean missing the initial bull market upswing.
The sun rises in the East. So perhaps it's apt China cast Wednesday's bright rays amid the general gloom. China's Shanghai Composite surged 6.1%, sparked by rumors Chinese Premier Wen Jiabao may unveil additional fiscal stimulus measures in his annual address to the legislature. Global markets also rallied. But the rumors proved premature, and Premier Wen stopped short of announcing any new stimulus measures Thursday. This isn't terribly surprising since the annual address historically has never been a forum to announce new policy directives (rather, it's to formalize week- or month-old decisions). Regardless of what was or not said, Premier Wen's speech reaffirmed the Chinese government's commitment to support economic growth.
Specific proposals in Premier Wen's speech, and in the accompanying budget speech by Finance Minister Xie Xuren, touched on boosting consumption and increasing domestic demand, notably through investments in infrastructure and housing. Wen also noted a variety of tax cuts will be implemented this year. Some will help boost productivity (the elimination of the value-added tax (VAT) on capital goods purchases and tax breaks for small- and medium-sized enterprises), and others aim to stabilize free-falling markets (tax breaks for real estate developers and property buyers). Thus, China's planned stimulus is underpinned by both government spending and tax reductions—an economic game plan that looks to bolster both short-term and long-term economic goals.
China, the world's third largest economy by GDP, posted its slowest growth in seven years for Q4 2008—GDP rose 6.8% from a year earlier—still growth, though shy of previous blazing trends. On balance, China will grow around 5% to 7% this year by most estimates. China's official gauge of manufacturing, the purchasing managers' index (PMI), rose in February for the third straight month. Every sub-index in the PMI, including output and new orders, also rose. Local Chinese media also reported strong lending activity. Chinese banks lent 1 trillion yuan (roughly $146 billion) in February, following 1.6 trillion (roughly $234 billion) in January. This optimism may merely reflect Chinese confidence in pending stimulus plans, but confidence is not superfluous to economic recovery and indicates support for the government's actions—more than we can say for reactions to Washington's waffling.
China's stimulus efforts will likely continue to largely focus on infrastructure and manufacturing. Both will require huge amounts of raw materials and energy from around the globe. China's already the world's largest consumer of iron ore, steel, copper, and aluminum, and bolstering its commodities appetite will likely have positive implications for the broader global economy.
We've often noted the importance of maintaining a global economic view—even a purely US-centric focus is fundamentally affected by non-US developments in today's highly interconnected world. Fiscal (and monetary) stimulus continues to grow globally, and governments remain committed to growth. A few green shoots are starting to appear in the global economic muck, though bad news will continue to dominate in the near term. But note: Stocks will reflect an economic recovery far before the data, so looking for broad signs of recovery in backward-looking economic data before jumping into stocks will mean missing the initial bull market upswing.