It’s even easier to write off China. But Keith Fitzgerald says China’s stimulus package, unlike America’s, is large enough to work. Expect an uptick in Chinese demand in late 2009 and an acceleration in 2010.

If America were to put in place a stimulus plan that represented the same proportionate outlay that Beijing’s will for China, we’d be talking about an infusion of nearly $1.83 trillion, or 10.89 times more than the positively puny $168 billion stimulus that went into the hands of U.S. taxpayers last year. And it would probably dwarf anything that President-elect Barack Obama is contemplating right now.

Think of the pile-driver-like effect a stimulus of that size would have on U.S. consumer spending – which, after all, accounts for 70% of what the American economy does. Billions of dollars in loans could be paid off and consumer debt retired. In that sense, such a massive capital infusion could do what U.S. Federal Reserve Chairman Ben S. Bernanke and his Bailout Boys can’t achieve. The Beijing-like infusion would provide a needed recapitalization of the financial markets – without rewarding those who got us into this mess in the first place. Most important of all, it would help the folks who are caught in the middle – us consumers.
What makes this particularly ironic is that the nature and composition of China’s stimulus program suggests that Beijing’s communist government understands consumer psychology and capitalist financial markets better than Western governments do right now – particularly the psychology.

For example, because of the credit crisis and relentless coverage of the flagging economy, consumers are scared stiff at the moment. And understandably so. They see factory orders declining and jobless claims spiking to their highest levels in 25 years. They read the news that retail stalwart Wal-Mart Stores Inc. (NYSE:WMT) – is lowering expectations. So consumers opt to hoard money out of fear, rather than spend it, and that’s what really kicks a recession into gear.

So what will China’s stimulus package do that ours won’t?

For starters, Beijing’s stimulus is designed to encourage spending, rather than reward malfeasance, as our bailout plan is doing. Further, there’s no buying up of bad debt. Instead, there’s an implied recapitalization that will take place through growth. But most importantly, Beijing is sending an ultra-clear message to its people – we will be here for you and we will help you directly – and that’s stoked the confidence in every Chinese contact I’ve talked to since the plan was announced.

And that uptick in confidence is warranted, given all that China is planning, including:

• Improved environmental-protection projects, including new sewage and waste treatment projects.
• More low-rent and affordable-housing projects.
• Distributed healthcare projects, including hospitals, clinics and medical equipment, particularly in the historically ignored rural regions.
• New highways that will more than double China’s navigable area and that will account for nearly 40 million new jobs in the next 24 months.
• New railways and railway-related projects, which will create 6 million jobs during 2009 alone and more after that.

Beijing’s stimulus is geared toward creating 3.0% to 5.0% gross domestic product (GDP) growth to augment the 3.0% domestic-consumption activity, for a total 2009 target growth rate of at least 7.0%.

While China’s stimulus is designed to create valuable growth, the U.S. package is simply concerned with plugging leaks. China’s package is forward-looking, while ours is not.

Clearly though, the effects won’t be immediate and Beijing knows that. And that’s why, based on historical trends, we expect it to be about six months before the money really begins to work its way through the system. Look for an uptick in Chinese demand in late 2009, and acceleration in 2010.

Look, also, for the worldwide ripple effects, particularly for commodities producers and exporters that do business with China, and the infrastructure providers. This package will stop many of these sector skids, and we can look to see them rebound in earnest once demand kicks in and the Renminbi (yuan) start to flow.

Let’s hope that the rest of the world gets the message. Washington’s current bailout plan isn’t large enough to restart the global markets and it sure as heck isn’t large enough to recharge investor psychology.

But China’s plan is. And that’s what Washington should be looking at.

Source: The One Global Market Where There are Gains Behind the Gloom