Friday, September 07, 2012

China Joins Stimulus Bandwagon via Massive Infrastructure Spending

China’s government appear to have coordinated their moves with the ECB; they suddenly joined the stimulus bandwagon by announcing massive infrastructure spending programs over the past two days.

Curiously, the program did not specify the amount involved.

From Bloomberg,

China approved plans to build 2,018 kilometers (1,254 miles) of roads, spurring the biggest stock market rally in almost three years on signs the government is stepping up stimulus efforts to revive economic growth.

The government also backed nine sewage-treatment plants, five port and warehouse projects, and two waterway upgrades, according to statements on the website of the National Development and Reform Commission yesterday. No investment amounts were given.

The Shanghai Composite Index jumped as much as 4.5 percent, led by construction stocks, on speculation infrastructure spending will help bolster growth that’s cooled to the slowest pace in three years. The announcements came a day after approvals for subway projects in 18 cities, an earlier rise in the railway-building budget and increases in land supplies in cities including Guangzhou, Hangzhou, Beijing and Shanghai.

Gosh governments truly love the stock market.

image

chart from Bloomberg

Substantial gains from the combined ECB-China stimulus have not been limited to China but through most of Asia.

And “unlimited” or “open ended” options or “unspecified amount” seem to be the du jour condition attached to the rescue mechanism offered by governments.

It’s good news for stocks for the meantime.

Yet it’s a sign of a political desperation. Desperate measures may even lead to more desperate times.

Updated to add:

The Reuters say that China's latest infrastructure spending program tallies to about 1 trillion yuan ($157 billion), this is far short to, or more than a quarter of the 2008-2009 package of $586 billion

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