China Financial Stimulus Package: "Oh, Yeah!"

Don't drink the Kool-Aid:

Sure, I might have the advantage of actually commenting on this after others have raised doubts thus casting a shadow on my observations, but when I first read about an RMB 4 trillion stimulus package I was a little skeptical. The thoughts went something along the lines of: China doesn't have a complex financial system that would need bailing out at the same scale as the US. If that's the case, they'll probably just turn spending inwards and build some stuff. But, doesn't China already have huge plans in place to already build a bunch of a stuff. If they already have plans to build stuff, is this "bailout" really just putting horns on a bear to make it look like a bull?

Looks like the answer is mostly yes. There have been some additions, but there ain't much there that wasn't already planned. Jack Perkowski gives a round up of the targeted areas for spending taken from Xinhua.

There's also a bunch of choice quotes from what are left of the world's investment banks over at WSJ.com China Journal. My favorite, because it gels with my thesis, is from Song Yu of Goldman Sachs:

Considerable uncertainties over the ultimate size of the stimulus still remain despite the headlines that are being quoted in the press. Certainly, this announcement does not imply the government will spend 4 trillion yuan of extra investments over the next two years…The 4 trillion yuan investment cost is a “gross” concept in the sense some of the investment would have been made without the stimulus package anyway. The amount of “extra” investments involved is still not clear at this point.

There was also a lengthy piece on NPR today that raises a lot of these questions.

But, since we seem to be measuring the success of these bailouts by the performance of stock markets, if the sentiment of the market is uplifted by semantics then let's wear out our thesauruses.

UPDATE: TIME: China Blog just did their own update from Merrill Lynch on how new the dough is. Apparently, RMB 1.65 trillion is newish, unless we actually don't know what the spending plans were as of mid-October, which we don't. And even if it is new, I'll quote the New York Times article linked to above: "China's overall government spending remains relatively low as a percentage of economic output compared with the US and Europe.