Understanding that a positive GDP in the 7-8% can still impact many of their own - Chinese government wisely implements their own revision of the stimulus package...only with a major difference - they are not bailing out the corporate and Wall Street investment bankers with million dollar bonuses who made bad bets... it's going to infrastructure and yes, the people.
The Chinese government announced a $586bn (£374bn) economic stimulus package yesterday designed to boost the country's weakening economy and help to counter the looming global recession.
Beijing is to loosen credit conditions, cut taxes and undertake a giant infrastructure spending programme over the next two years that will amount to up to 7 per cent of the country's gross domestic product. The scheme is not as big as the $700bn government bail-out in the US, but China's economy is only one quarter the size of North America's.
Investments will go ahead in 10 areas including housing, rural infrastructure and rebuilding after disasters such as the devastating earthquake in May. In the next three months alone, some 400bn yuan (£9.3bn) will be made, including 100bn yuan from current funds and another 20bn Yuan brought forward from next year's post-disaster reconstruction budget, the Chinese government said.
The decision was announced yesterday by the State Council following last Wednesday's meeting led by Premier Wen Jiabao. "Over the past two months, the global financial crisis has been intensifying daily," the State Council statement said. "In expanding investment, we must be fast and heavy-handed." The package, likely to welcomed across the world, comes just as President Hu Jintao is about to travel to Washington to participate in the global economic summit next weekend.
China's central bank has already cut interest rates three times in the last two months in an attempt to warm up an economy cooled by falling exports, lower manufacturing output and dropping property prices. The government is banking on expanded domestic demand, fast-track construction projects and improved living standards for the poor to fill the gap left by exports. Since last year, monetary policy in China has been tight – leaning on banks to control lending, for example – as part of measures designed to take the edge off building inflation caused by an economy close to overheating.
The State Council says the country is now to adopt "active" fiscal and "moderately active" monetary policies with a view to "steady and relatively fast" economic growth. The government is abolishing commercial banks' credit ceilings, to channel lending to priority projects, and scrapping loan quotas, to help small businesses. Fiscal measures also in the scheme include value-added tax reforms on purchase of fixed assets such as machinery that Beijing says will cut industry costs by 120bn yuan, and raised grain purchase prices, farmers' subsidies and allowances for low-income urban households.
After five years of spectacular success – hitting a massive 11.7 per cent growth in 2007 and accounting for 27 per cent of all global expansion – the Chinese economy has shown signs of braking recently. GDP expansion dropped back to single digits for the first time this year, and the harshest predictions for the fourth quarter fall as low as 5.8 per cent. Even the relatively cautious International Monetary Fund has cut its forecast for the full year to 9.7 per cent, with predictions for 2009 even lower at 9.3 per cent.
Several key differences come to mind here compared to the still credit-tight North America:
- Lending to small business - YES
- Infrastructure improvement - helps middle class get to work and convenience - YES
- Subsidy to real world producers such as farmers (maybe miners eventually) - YES
- Providing jobs with the billion bailout package as they are constructing infrastructure across the country - YES
I have a feeling this will likely have a greater impact than the AIG and the $700+ more bailout that US has received so far. Would you agree?
So far the market has acknowledged it - Asia indexes are up around 6-7% so far. North American indexes do not look so rosy today.
TOKYO, Nov 10 (Reuters) - The Nikkei average gained 5.8 percent on Monday as China's nearly $600 billion economic plan helped boost investor confidence, encouraging buying of shippers and machinery firms such as Hitachi Construction Machinery. (6305.T: Quote, Profile, Research, Stock Buzz) [ID:nN09395080]
The benchmark Nikkei .N225 climbed 498.43 points to close at 9,081.43, after ending Friday down 3.6 percent.
The broader Topix .TOPX index gained 4.3 percent to 916.65. (Reporting by Aiko Hayashi)
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Elsewhere in our mining junior world, quality companies continue to take hits despite progress onwards.
TNR Gold Corp (TNR.v) finally has a property covered by Canaccord by famed analyst Wendell Zerb - Los Azules estimated at $650 million. Given a modest 25% back in and ownership of adjacent property - it should warrant a trading price higher than $0.05.
Minera Andes (MAI.to) should have plenty to smile about but the stock price continues to suffer - despite coverage by Canaccord and pricing target at $1.40 (which it was at before beginning of October...) Large % Shareholder and Ex-GoldCorp captain Rob McEwan is likely expected to steer his heavyweight investors into MAI soon with Q3 revenues due out very soon - expect a decent rally of 20% when they annouce they are *gasp* still making money!
TNR's joint venture partner in Alaska, NovaGold has taken another large hit to the bow of the NG ship, as newsletter writer Jay Taylor recommends to his readers to sell sell sell!
Jay Taylor in the Oct. 16, 2008, edition of Gold, Energy & Tech Stocks tells readers to sell their NovaGold Resources Inc., recently $3.90. Mr. Taylor said buy in July, 2000, at 44 cents and in November, 2003, at $3.52, and then sold in June, 2004, at $5. A $1,000 investment for each of his two buys, sold at $5 would have yielded a jim-dandy profit of $10,735. He said buy again in January, 2006, at $10.59, and then sold again in March, 2006, at $15.25. A $1,000 investment at $10.59, sold at $15.25 would have yielded a profit of $384. Mr. Taylor said buy again on Sept. 15, 2006, at $17.30 and on March 17, 2008, at $9.48. Assuming a $1,000 investment for each of his two latest buys, selling the total $2,000 investment at $3.90 would yield a loss of $1,394. Mr. Taylor says he is selling NovaGold because of a rapidly deteriorating global economic environment, and not because of a loss of interest in the company. The newsletter writer has decided to sell those companies in his portfolio which do not have a considerable amount of cash on their balance sheets. By doing so, he hopes to turn these negative markets to his favour, or at least avoid further losses. He plans to keep an eye on NovaGold for a possible repurchase when there are signs that the current global decline has abated.The reason given was fairly ludicrous, as NG was cited as "not having enough cash". Last I checked, making $16.7 million a quarter was quite a bit of cash, no? Another reason why so many investors are doubtful of newsletter writer these days, after all what do you pay $2,000+ in suscription fees for, anyways?
In copper news, the merger of two high profile juniors, Sherwood (SWC.to) and Capstone (CS.to) continues to tread both companies lower as the process proceeds further.
A brief scan of the 52-week charts of both profitable companies (Capstone even owns a profitable junior miner, SilverStone SST.v !) will review a similar chart to most other TSX juniors... a slippery slope.
With combined management and lower overhead, we should expect even better margins and higher profitability. Only obstacle now is to overcome the overall negative sentiments of investors and the ridiculous mindsets of holding onto your cash... which is depreciating as fast as the cash is being printed from the Federal Reserve Boards.
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