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America, Take Note of China’s Stimulus

Photo Credit: The Economist

The Chinese stimulus package is already enjoying progress after new reports show that auto sales and investment growth in China are strong, even as exports weaken. New tax cuts and an increase in infrastructure spending are proving to be a boom for China's economic growth.

How the numbers look

The Chinese government reported that urban fixed-asset investment, which accounts for some 40% of China's growth, grew by 26.5% in January and February combined. Car sales numbers also proved strong with the Chinese auto industry as a whole posting 25% growth in auto sales year over year in the month of February.

China's biggest investments

The biggest of the internal investments were in the agricultural and railway departments, where spending increased by 200 and 300 percent respectively. The money is being used to build new railways to connect rural towns with China's manufacturing cities to spur growth and help grow the world's biggest consumer goods exporter. Agricultural investments include improving soil conditions and promoting China's agricultural industry against that of the rest of the world.

Energy on top

In light of being the number two energy consuming nation in the world, China is rolling out billions of dollars to be infused in developing cheaper and more accessible forms of energy that can be used to power its businesses. Taking a lesson from the 2008 oil boom, new electrical plants and better infrastructure to distribute energy across the country should prove to be a great investment in China's economic progress.

Taking profits in this market

Though the stimulus is making waves in the Chinese economy, the stock market has barely moved since the unveiling of the program. Efforts to revive the economy have not yet been seen in the stock market; however, public spending should soon make its way to corporate balance sheets. Many industrial companies are sure to express good news when they report earnings. This money will also soon make its way into the personal economy through wages, expenses and business expansion, but investors may have to wait until the third quarter to see any true impact on the personal level.

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