Lessons From China's Stimulus

China and the United States have both engaged in economic stimulus plans. This provides an opportunity to compare, and hopefully to learn.

China's stimulus brought them through the economic crisis, even as they lost some exports because of the slowdown. They made the leap into alternative energy technology, spent $100 billion just for high-speed rail, and showed the world how fiscal stimulus works. Their growth rate is currently 13%. Ours is currently ... nowhere near 13%.

In November, 2008, China announced its $586 billion plan [1],

Beijing said it would spend an estimated $586 billion by 2010 on wide array of national infrastructure and social welfare projects. They would include new railroads, subways and airports and rebuilding areas like those devastated by the Sichuan earthquake in May.
… It would amount to about 7 percent of China's gross domestic product during each of the next two years.

So their stimulus totaled about 14% of their GDP. Our own stimulus was $862 billion in a $14 trillion economy, or about 6%. The differences between the priorities of the two plans are clear when seen on charts.

From a year ago: China's Stimulus Package: A Breakdown of Spending [2]:

The first chart of our plan [3] from the stimulus bill (as proposed) provides detail. The second chart from Think Progress [4] shows major categories.

China focused on investment in public infrastructure, which leads to future economic growth. We are mired in conservative ideology so we focused on tax cuts, which do little more than increase our debt.

And we didn't get the spending started very quickly. According to a one-year analysis [5],"Through the end of January, roughly $334 billion in spending has been approved, of which $179 billion has actually left federal coffers. Another $119 billion has gone to tax cuts." and "only $31 billion has been spent on projects such as infrastructure, high-speed rail, broadband and health technology."

Quick lessons:

- China spent serious money, quickly. It worked.
- China focused on infrastructure. It worked.
- China has a national economic/man manufacturing strategy and invests in R&D and developing strategically important industries. We don't.
- Don't cut taxes, it only causes massive yearly deficits and accumulated debt.