What are your plans?

Below is an article that provides some insights on the current Chinese economy and what are the expected stimulus measures that have been announced, and to be announced in the coming weeks and months. It seems that China, like the rest of the economies are relying on growth to steer the economy away from the imminent world economic slowdown. (A similar writeup was mentioned here before). Questions that arise include whether the economy has reached its bottom and how effective it would be the stimulus plan to address the precarious situation. If plan A does not worked out, do you have plans B, C and D? I guess we will just have to wait and hope for the best.

FT.com: For most governments, a growth rate of 9 per cent in the midst of a global financial calamity would be little short of a miracle. Yet in China, such an announcement has only added to the sense of apprehension surrounding the economy. After five years of souped-up, double-digit expansion, the drop in third-quarter growth to 9 per cent is the latest and most definitive signal that the economy is slowing. Economists remain divided, however, over whether China is witnessing a welcome breather after the hectic expansion of recent years or the beginning of a prolonged slide in growth rates that will deepen the expected slump in the global economy.

For all the resilience that the Chinese economy has shown since the credit crunch began last year, recent commentary both at home and abroad has adopted a much more pessimistic tone. The reason is that some economists fear the problems are only just beginning to arrive on Chinese shores.

Exports have held up much better than expected so far this year, expanding 23 per cent in the third quarter in dollar terms as Chinese companies discovered new markets in booming emerging economies. Yet many of those countries are now beginning to suffer from their own financial crises or falling commodity prices. Moreover, economic activity in Europe, China’s biggest export market, is also beginning to slow sharply. In one of the more downbeat prognoses, Sherman Chan, economist at Moody’s ratings agency, said many businesses were now struggling amid weakening external demand. She added: “China’s growth miracle has finally ended.”

China is beginning to suffer its own property market downturn, which could have a substantial impact given the large role that real estate investment plays in the economy. Prices began to fall in August compared with the previous month and figures for units of housing sold and property under construction have also shown significant drops.

The government said steel production fell in September from August, the latest indication of weaker investment in real estate that could feed through to global commodity markets. “The slowdown in China is likely to be felt strongest in the most commodity-intensive parts of the economy,” says Mark Williams at Capital Economics.

Yet while everyone agrees the Chinese economy is decelerating, some economists believe this is a necessary adjustment to maintain long-term growth rather than a looming slump.“Since last year, Beijing has advocated a slower, more sustainable pace of growth,” says Andy Rothman, economist at CLSA in Shanghai. “China continues to be well placed to avoid following the western world into the economic abyss.”

The Chinese authorities have more weapons at their disposal than most governments. China appears to have overcome the inflationary problem it was facing earlier in the year, with both consumer and factory-gate inflation dropping in September. This will give the central bank more room to cut interest rates further or ease limits on new bank credit. Although a sharp fall in house prices will create a new wave of bad loans for the banks, Chinese consumers and homeowners do not have anything like the debt levels that have undermined the financial systems of other countries. “Nothing that is happening now shakes our confidence in the overall direction of the Chinese property market,” says Nicholas Loup, chief executive of Grosvenor Asia, a property group.

Some of the companies with the biggest problems have been hit by deliberate government policy as much as by weak demand. In sectors such as real estate, steel and the export of cheap goods, the government has been trying to weed out smaller companies that are either inefficient or heavily polluting.

Moreover, the government also has a strong fiscal position that will allow the economy to sustain high investment rates, as long as the global slump does not continue for too long. The State Council announced plans yesterday to help the property market and exporters, which are expected to be the first steps in a broader fiscal stimulus programme. Few details about spending plans were given, which partly reflects arguments within the government about how and when to proceed. Yet such caution amid mounting questions suggests Beijing, so far, is not too anxious about the slowdown

Here is another article from China Economic Review that give a brief account of what the economic stimulus package would look like short of mentioning the estimated amount needed:

China is preparing a raft of measures - likely to include interest rate cuts and an increase in infrastructure spending - in order to spur economic growth, the South China Morning Post reported. "Concrete fiscal, credit and trade measures will be issued soon," a spokesman from the National Bureau of Statistics (NBS) Li Xiaochao was quoted as saying. The NBS on Monday announced that China's economy had grown by 9% in the third quarter, its slowest rate in five years. The paper cited economists at major foreign banks who predicted that China's economic stimulus package would likely include a slower appreciation of the yuan against the dollar; price rises for electricity, natural gas and petrol; increasing infrastructure spending by US$43.9 billion; reducing the value-added tax on housing transactions; three or four rate cuts of more than 27 basis points each from the benchmark one-year lending and deposit rates by the end of 2009, as well as one or two reserve ratio cuts of 50 basis points each.

* What is Malaysia's plan? Do we also have a comprehensive plan? Our economy remains strong, no need to worry? Our EPF's money of RM5b will be used to buy stocks! Without going into whether the amount is sufficient, do we need to say aye first? ValueCap who? Now with RM5b worth of stocks to be bought, commission at 0.2% generates RM10m!! Who are the lucky brokers and remisiers "selected" to trade?

* Bloomberg: Iceland's government is very close to a rescue deal with IMF- a deal worth USD6b. For our information, 2 Iceland banks themselves were saddled with debts amounting to USD61b or 12x the size of the economy.(refer here for previous posting). The next victim on the line would be Pakistan, Hungary, South Korea?....

* Bloomberg: Now Pakistan is said to require USD10b over the next 2 years to avoid defaulting on debt.

* Vietnam cuts back its interest rate by 1 percentage point to 13%.