China to save the World

After a brief Chinese National Holiday break, I attempt to look into how the world has fared since various governments poured in funds to stimulate the economy after the September 15 plunge last year . Parades & celebrations to earmark the 60th Anniversary of the Peoples’ Republic of China gave hope that a strong & prosperous China can lead the world out of a recession. To stimulate domestic spending of this nation with 1.3 trillion people with a saving rate of some 36% is what world leaders are urging Chinese government to push.

A rolling tap of how much governments have pledged to spend:

USA USD 787 Bn
China USD 588 Bn (RMB 4 Trillion)
Japan USD 167 Bn
UK USD 175 Bn
Hong Kong USD 10 Bn (HKD 80 Bn)

Tangible result of the above is a rebound of the stock market of some 50% in the west & 75% in emerging markets since the nadir. Real estate prices have also gone back to 2008 highs in Hong Kong & China while USA & UK are seeing mild up-turns. This is fuelled by exceptionally low lending rates and the risk adverse attitude towards other investments.

Government spending, apart from buying into failing financial institutions or investing in infrastructure like China, have contributed little in re-building different businesses & the economy. Across the board in various countries, perhaps except for Australia & New Zealand, business fundamentals remain weak as top line sales is not growing. This is driven by heightened unemployment and stagnation or lowering of income. A low interest rate also dampens spending of people with savings. With nil return on putting money in the bank, Asians, with a savings habit, are reluctant to spend.

It is true that the feel-good sentiment is now with the mainland Chinese. It is good to encourage them to spend, to stimulate growth of their motherland, as well as to help save the world.