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HEXUS.sharewatch: Chinese stimulus package boosts shares

by Scott Bicheno on 10 November 2008, 10:51

Tags: Bank of England

Quick Link: HEXUS.net/qap4o

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Even by contemporary standards last week was an eventful one. The US got itself a new President, the Bank of England dropped interest rates by the most in a generation and Intel released its new flavour of CPU.

It may have seemed reasonable to expect stock markets to get a lift out of all these pieces of apparently good news by the opposite has been the case. Immediately after the election markets were down and the interest rate cut failed to lift things, even in the UK.

So the lift to shares from the news that the Chinese government is to pour an additional four trillion Yuan (there are roughly 10 Yuan to the Pound right now, so ~£400 billion) back into the Chinese economy.

This will take the form of accelerated or additional public infrastructure projects and enhanced social security. The ultimate purpose is to inject more cash into the Chinese economy to try to compensate for the reduced consumption and economic activity that is resulting from the global lowdown.

China's move adds to a growing global tendency to dabble in Keynesian economics in order to stave off a recession of depressing proportions. Keynes was a prominent economist in the 1930s and 40s, who suggested that governments can play an active role in boosting demand for products and services by creating more public sector jobs.