Saturday, March 14, 2009

Why China's Stimulus Plan Will Change the World

China has paid heavily for this relationship. Rather than invest its surplus cash in its own country, the Chinese poured money back into the United States to further spur our debt-fueled consumption. (Put less artfully, some poor Chinese guy in Shaanxi province was essentially helping you pay your mortgage.)

The announced stimulus package reverses that situation. Hundreds of billions of dollars that would have gone to propping up the greenback are now being reinvested in China, where the money can help China transition from its reliance on exports to become a self-sustaining economy. So although China isn't yet decoupled from its export markets, this new spending plan will help it along that path.

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