Stimulus package wins praise

The massive stimulus¹ package announced by China over the weekend to counter the effects of a global slowdown drew praise from world leaders and economists⁴, and sent stocks rising around the world.

Australian Prime Minister Kevin Rudd said the package was good news for his nation.

"I regard that as very good news for this economy, very good news for the regional economy, very good news for the global economy, and it is certainly consistent with many discussions that the treasurer⁵ and myself have had with various Chinese counterparts in recent weeks," he said.

British Prime Minister Gordon Brown also welcomed China's move and said he looked forward to discussions at a Washington meeting this weekend of leaders from the Group of 20 (G20) major economies, which President Hu Jintao is due to attend.

The move could benefit other nations gripped in the global financial crisis, David McCormick, the US Treasury⁶ Department's undersecretary for international affairs, told reporters in Sao Paulo, Brazil, on Sunday.

McCormick was attending the annual meeting of finance ministers and central bank governors of the G20 developed countries and emerging economies.

Brazilian Finance Minister Guido Mantega, who chaired the Sao Paulo meeting, said China has taken "the lead" to avoid an economic slowdown amid international financial turmoil⁷.

He said China's plan is an "anti-cyclic" policy to avoid the shrinking of the economy.

The mainland and other Asian stock markets gained strongly yesterday in response to the stimulus package.

Shanghai's benchmark index spiked⁸ more than 7 percent, as investors⁹ welcomed the 4-trillion yuan($586 billion) stimulus plan aimed at boosting domestic demand.

Hong Kong's Hang Seng Index gained 501.20 points, or 3.5 percent, though it ended well off its highs.

Markets in Japan, India, Australia and South Korea as well as in Europe and the US joined the region's advance.

The State Council, or the Cabinet, said on Sunday that it would increase spending in 10 sectors¹⁰, including housing, rural infrastructure¹¹, railways, highways and airports.

The news lifted sagging¹² oil prices on the hopes that it would stimulate¹³ energy demand. Oil rose $2.69 to $63.70 a barrel in Asian trading on the New York Mercantile exchange.

But some economists noted¹⁴ the size of the stimulus may be smaller than advertised. Then there is the question of how much is actual new spending.

"The stimulus package is big, but it's actually a combination of a lot of things that have already been announced," said Ken² Peng, a Citigroup economist³ in Shanghai.

The plan includes projects already under way, including reconstruction¹⁵ from the devastating¹⁶ May earthquake in Sichuan, said Sherman Chan, an economist for Moody's Economy.com.

Questions:

1. What percent did Shanghai’s benchmark index increase (spike) by after hearing the news?

2. Name three of the 10 sectors the State Council said it would increase spending in?

3. How much has the Chinese government promised to spend in the stimulus package?

Answers:

1. It rose by more 7%.

2. housing, rural infrastructure, railways, highways and airports.

3. $586 billion.