China Develops $586 Billion Stimulus Plan

Trying to learn forex and follow world economies in the recent months has revealed a strong trend towards large-scale government rescue efforts. Yet another country has announced a stimulus plan to buttress its weak economy. In addition to Japan and South Korea, China is planning a $586 billion stimulus plan designed to boost consumer spending through tax cuts, construction projects, and aid to farmers and the poor. Stimulus talk has been heightened with reports of a 9% decrease in economic growth during the last quarter and a growing number of layoffs, especially in export industries. An additional stimulus may supplement the main package with spending on schools and health to offset the high cost of education and healthcare to Chinese families.

The stimulus plan is not the only measure being used to help the economy. In late November, the People’s Bank of China made a 108-basis-point cut to interest rates. Although the rate cut was expected by investors, the magnitude of the slashing—the largest since the Asian financial crisis of October 1997—caught most by surprise. However, it did help the yuan post a modest gain against the U.S. dollar in forex trading, as did further cuts in December. Most analysts anticipate the yuan floating between 6.80 and 6.90 against the dollar, though if export production suffers in the near future, it could weaken further.