China Shows the World How to Stimulate
Australia bails out economy - Bad.
US bails out economy - Bad.
Europe bails out economy - Bad.
China bails out economy - Good.
Well, not quite. For a start, the AU$849 billion ’stimulus package’ proposed by the Chinese sounds like a lot of money. And it is. It is more than the US government is spending on its TARP initiative to bail out the credit market.
But at least the Chinese money might be spent on something useful. The US government is spending nearly the same amount just to buy dodgy debt.
The one thing we don’t know about this package is how much of the USD$586 billion is additional money to what had already been promised.
For instance, back in July US investment firm Merrill Lynch estimated Chinese infrastructure spending to be USD725 billion per year over the next three years. Sure, things have changed a bit since July, but there is no evidence yet that this is entirely new money.
Even so, it is still significant. So if we suppose the USD586 billion is added funds then it will likely take Chinese infrastructure spending to north of USD$1 trillion per year.
The upside is twofold. First it is being spent on things that country needs. Second, if it wants to, China can pay for it in cash, unlike in the US, Europe and now Australia where ’stimulus’ packages will have to come from debt.
And then we have the Australian government version of a stimulus. Give the money to a basket case industry and hope for the best.
The one positive about the hand-out to the three Australian based car manufacturers is that it involves them spending $3 to get $1 of government funding. To be honest, we’re not sure that is likely so the taxpayer’s $6 billion should be safe.
The automotive industry in Australia employs about 60,000 people directly and up to another 200,000 in related industries. It is a big employer. But does it warrant special treatment by the government on this basis alone? We don’t think so.
Our guess is that government’s view vehicle manufacturing the same way as they view national airlines: a ‘badge of honour.’
