Stimulating details

Posted on 12/04/2008

Another day, another glimpse into the mysteries of China's fabled stimulus package. New policies aimed at encouraging lending for infrastructure, small businesses and car and home buyers sound sensible enough. There's also more credit - US$14.6 billion - for policy banks to stimulate growth. But China's refiners are among those not looking for a quick turnaround. They're planning to cut production to 20-month lows in December due to weak demand and huge oil and diesel stockpiles (probably some of that pricey pre-Olympic stuff still lying around).

And it's bad news again for China's baby food industry, with reports that the EU has banned imports of Chinese-made soy-based baby food after it discovered melamine in soybean meal. Combined with yesterday's news that the real toll from the dairy melamine scandal was higher than initially stated, that doesn't bode well for anyone.

Neither are things looking good for Western banks. That's the view of Lou Jiwei, the head of sovereign-wealth fund CIC, who said his fund would stop investments in Western banks due to uncertainty regarding Western governments' policies toward their banking sectors, and a general lack of information about the banks' own situations. Whether for political or economic reasons, Chinese banks are clearly a preferred investment. Central Huijin, a unit of CIC, has been quietly putting US$175 million into three state-owned banks since October. That preference for the home team was also visible in Nanchang, where authorities have decreed internet cafes must use a home-grown Linux variant, Red Flag, in place of pirated copies of Windows.

Earlier summaries

CER links: Huang Guangyu, Manufacturing, World Bank

Special Report: China's factories try to weather the economic storm

Rothman: China's economic problems are short-term