ZHONG GUO - THE MIDDLE KINGDOM

ZHONG GUO - THE MIDDLE KINGDOM
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Apr 2, 2009

Can China Save the World? Far Eastern Economic Review Weighs In

The recent announcement of China's stimulus package has raised hopes around the world that China will be able to bankroll the US and the rest of world. This article tackles the issues behind the downturn such as decreasing consumption--both on a consumer and merchant level. With more and more companies scaling back and laying off, the rate at which government spending can counteract these forces is likely to have little short term effect.

Consumers increased fear of markets creates additional dilemmas. The recent banking industry scandals has made some want to stash their money under their mattress rather than investing or depositing it. The Chinese have long had this fear which has led to high savings rates. It is likely even higher than actual estimates due to unreported "mattress savings". Individuals not spending is what further hinders the recovery process because it prohibits firms from spending. So a vicious cycle is in-process. The real question is "How do you restore confidence so that all people starting spending again?" And, not, spending on credit but with cash.

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