China to Spend $1.7 Trillion to Stimulate Global Growth

Currently, the global economic growth outlook is being described as “grim.” Fortunately, there's something that can be done about it.

The United States and China – being major world economicies – have the opportunity to play a significant role in re-structuring the global economy and make major, positive contributions to the world simply through their “own steady development”.

And China is taking the initiative to make a big step in the right direction. And the U.S. is working out an interesting trade deal with them...

In the annual meeting between the U.S and China Joint Commission on Commerce and Trade, China announced their plans to inject $1.7 trillion on “strategic sectors” that could help boost the waning world economy. The $1.7 trillion deal has been attached to a five-year stimulus plan.

In the meeting, held in southwest China in the city of Chengdu, Chinese Vice-Premier Wang Qishan suggested that an “unbalanced recovery” could be the ideal solution when compared to a “balanced recession.”

Essentially, China would stimulate this “unbalanced recovery” by attempting to increase the amount of exports leaving the country like the country did back in the financial meltdown hindering the world economy back in 2008 and 2009.

Beijing is going to worry about fixing their own economy before they make any lofty plans to fix financial problems here in the U.S. and across the globe. The idea behind the intended action is that fixing things at home first will eventually trickle towards other nations.

And China certainly needs to do something to stimulate growth at home. Currently, it is facing a .6 percent price dip in the third quarter when compared to the first quarter. It has dropped from 9.7 percent to 9.1 percent.

In order to support growth, the Chinese nation will make some changes in its trading policies:

In particular, China committed not to require foreign automakers to hand their new energy vehicle technology over to Chinese partners, or to establish Chinese brands as a condition for market access, said U.S. Trade Representative Ron Kirk.

"China also confirmed that foreign-invested companies will be eligible on an equal basis for any subsidies or incentive programs for electric vehicles," said Kirk.

Although the JCCT talks do not address exchange rate policies, U.S. officials at the talks warned Wang and his colleagues that they could not ignore rising American impatience with China's trade policies and investment barriers.

Meanwhile, Obama “raised China's exchange rate policies” that will keep the yuan cheaper compared to the U.S. dollar. Hypothetically, that will boost Chinese exports.

On the other hand, a lot of Americans worry this will not be beneficial at all to the U.S. Americans are angry about Chinese restrictions on trade policies as well as their investment barriers.

Although there is still some obvious friction between the two countries, some progress has been made at today's meeting regarding trade agreements and investment strategy.

"Cheap Chinese goods have been a subsidy for the poor in the U.S., and now the U.S. government wants to eliminate such subsidy while it's having difficulty creating jobs," he said.

At the heart of the trade friction between the two countries is a U.S. trade deficit with China that swelled in 2010 to a record $273.1 billion from about $226.9 billion in 2009.

*Indented excerpts from REUTERS.

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