Beijing - China's announcement of a stimulus package that will pour more than half a trillion dollars into its economy will have repercussions far beyond its borders in a time of global crisis, economists say.
The package, decided at a recent meeting chaired by Premier Wen Jiabao, calls for tax cuts and increased spending corresponding to about seven percent of China's gross domestic product over the next two years.
"This is really China's Big Deal, which dwarfs all the previously announced monetary and fiscal measures as little drops," JPMorgan economist Frank Gong said in a research note.
Reflecting China's growing economic muscle, the four-trillion-yuan ($590bn) stimulus package could send ripple effects across the globe, to countries as far away as Latin America.
"The main impact will be on the commodity market, (in) countries like Australia and Brazil. It may help stop the price slumps," said Andy Xie, an independent Shanghai-based economist.
"It may possibly help stabilise the economies of smaller countries like South Korea which export a lot to China."
The package comes amid rapidly worsening predictions for the impact of the financial turmoil on China's export-dependent economy.
The nation's trade surplus dropped 2.6% in the first nine months of 2008, making it very likely that overall economic growth this year will slip into single digits for the first time since 2002.
"For the central government, the impact of the crisis on China was apparently more serious than it had expected," said Chen Manjiang, a Beijing-based economist with Bank of China International.
The timing of the package - before a major annual work conference on the economy that usually takes place in November or December - was significant, she said.
"The reason for the early announcement is that the government wants to promote confidence in China's economy both domestically and among the international society," she said.
'Living in a different world'
Judging from early reactions abroad, the outside world had taken note, with the package welcomed by Jim Flaherty, the finance minister of Canada, a supplier of raw materials to China.
British Prime Minister Gordon Brown said in a statement: "It is vital that all countries play their part in stimulating growth in the world economy at this time."
This is a message that China may get to hear more often in the coming days and weeks, with advanced economies expected to contract next year for the first time since World War II, according to International Monetary Fund forecasts.
China has the world's largest foreign exchange reserves, at $1.9 trillion, facing it with growing calls to play a part in boosting global growth.
However, Beijing's counter-argument has been that it serves the world best by helping along its own economy, forecast by the IMF to expand by 8.5% in 2009.
But with President Hu Jintao going to a global finance summit in Washington this weekend, he is likely to be met with demands for concrete evidence that China is indeed willing and able to keep up domestic growth.
"China had to announce a big spending plan to show the world that it is serious to keep up growth at home, before President Hu arrives in the US for the summit," said JPMorgan's Gong.
Almost as important as the extra trillions is the chance in attitude that the package signals.
Xie, the Shanghai-based economist, said that until very recently officials in Beijing behaved as if they were "living in a different world."
"Their knowledge about the financial crisis was quite limited, and they thought they could control the impact and there was no problem. Maybe they did believe in it after it had been said so many times," he said.
"The announcement of the policy is likely to reflect a change of attitude among the top policy makers, which will lead to changes among the lower-ranking officials as well."
- AFP