A stimulus package: true or not

Stephen_Chang via Flickr JP Morgan's chief economist Frank Gong disclosed a possible stimulus package by the central government of close to 400 billion Renminb (40 billion euros) or ten times the investments into the Beijing Olympics.
The plan was to be launched in case China's GDP would be belong 10 percent and even then the structure of the fund was still very much under discussion. Those were two rather huge 'if's' that should be kept in mind, as the recent GDP-figures still suggested a growth of slightly more than ten percent. Even the size of the now-discussed package moves between 200 and 400 billion Renminbi.
But not surprisingly, China's bureaucracy smelt new policies and a huge rucksack with capital, so a huge lobby campaign to get money has been on its way. Focus of the packages was supposedly the small and medium size industries (SME's).
As a more or less official source, the Economic Observer said it could not get official confirmation of the existence of the financial package, but also fell short from declaring the story dead:

According to an official from the Office of the Central Financial Work Leading Group, the office was actually considering a plan to relax macro controls a little and prevent possible economic decline. "Though some data had been leaked through informal channels, it didn't hinder the top officials from studying the plan," said this source.
If approved by the Office, the plan would still need further study by the MOF and approval from the State Council. Policies such as tax reductions might also be deliberated on by the National People's Congress.

The two 'if's' are still firmly in place and - in contrast to what some have suggested - economic disaster is not at hand. Even if China's economic growth would drop below the current double digits, consultant Arthur Kroeber of Dragonomics in Beijing remains optimistic:

"It's a big downshift, and that may create some problems, but they'll still be growing faster than any other major economy in the world."

Meanwhile, China's bureaucracy might be lobbying the central government to get some of the still illusive extra funding into their coffers. The Economic Observer is giving an overview of the current state of thinking. It calls for caution:

Compared with the whole of China's GDP, 370 billion yuan only made up a small portion—1.77%. Therefore, Li believed the formula was more a long-term, sustainable policy than a significant, temporary measure. And he suspected this package might be an arrangement of budget surplus rather than an economic stimulation.

Do remember that not so long ago China's financial authorities are blamed for their inability to cool down its economy, despite using their full toolbox. In addition, whether the global economic downturn is actually going to affect China is in big way is still an open question. Less spending power elsewhere in the world might help China's export of relatively cheaper products, in stead of causing a downturn.

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