China’s Stimulus Plan…effect on US

China’s huge currency reserves are about to be put to use, and while there will be some real and perhaps severe bumps along the way, the China that comes out on the other side will be a heck of a lot stronger, more independent, than the one we’ve seen up to now.

Chinese premier Wen Jiabao called his country’s stimulus the “biggest contribution to the world.” Whether that’s true or not, China’s ability to reach deep into its huge coffers to finance further growth gives it a huge advantage over the rest of the world’s struggling economies. This is why more American investors should be taking advantage of this current temporary downturn to diversify their portfolios into previously expensive Chinese stocks. China announced a 4-trillion-yuan ($586 billion) stimulus package for its domestic economy recently. It plans to fund extensive infrastructure construction, aid poor farmers, and cut export taxes.

While China’s plan has clear beneficiaries, and should help keep more laborers in their jobs and prop up domestic consumer spending, the most important (and underreported) aspect of the plan is how it will fundamentally change the economic relationship between the U.S. and China. Here’s how it was One of the big debates over the past several years was whether China had reached a point in its economic development at which its internal economic gravity would allow it to separate from the global economy.

If so, it could continue along its fantastic growth trajectory, even as growth in the U.S. or Europe ceased or reversed. That may sound like gobbledygook, but it’s important. The U.S. has a $20 billion monthly trade deficit with China. It’s funded by China’s willingness to hold U.S. treasuries in its Central Bank (essentially, we’re borrowing the money).

China manages the arrangement by pegging its currency (Yuan) to the dollar at an artificially low rate, and by not worrying so much about environmental regulation and labor protection. It’s a mutually beneficial arrangement — a weak Yuan supports Chinese exporters, helping the country industrialize and quickly integrate rural migrants into its urban workforce, with the salutary effect of keeping inflation and potential political unrest low.

For its part, the U.S. has gotten dirt cheap financing, by virtue of China parking more than a trillion dollars in U.S. government securities. That has supported the dollar and allowed the Federal Reserve to fuel consumer spending by keeping interest rates low. China’s stimulus package heralds the unwinding of this relationship. Here’s how it will be Many analysts have pointed to the thousands of factories that have shut down in China in these past few months as evidence that a slowdown in American spending will cause a depression in China — potentially even leading to regime change. But in fact, our trade imbalance with China is artificially preserved by the aforementioned currency peg, and by the decision of China’s state-run banks to make uneconomic loans to businesses it deemed worth propping up.

China has paid heavily for this relationship. Rather than invest its surplus cash in its own country, the Chinese poured money back into the U.S. to further spur our debt-fueled consumption…basically some poor Chinese guy was essentially helping you pay your mortgage. The announced stimulus package reverses that. Hundreds of billions of dollars that would have gone to propping up the greenback are now being reinvested in China, helping it to transition from its reliance on exports to a self-sustaining economy. So while China isn’t yet parting ways from its export markets, this new spending plan will help it along that path.

China’s Big Move

In the  greatest movement of people the world has ever seen, China is secretly working to turn the entire continent into a new colony.

Reminiscent of the West’s imperial push in the 18th and 19th centuries – but on a much more dramatic, determined scale – China’s rulers believe Africa can become a ’satellite’ state, solving its own problems of over-population and shortage of natural resources at a stroke.

With little fanfare, a staggering 750,000 Chinese have settled in Africa over the past decade. More are on the way.

The strategy has been carefully devised by officials in Beijing, where one expert has estimated that China will eventually need to send 300 million people to Africa to solve the problems of over-population and pollution.

The plans appear on track. Across Africa, the red flag of China is flying. Lucrative deals are being struck to buy its commodities – oil, platinum, gold and minerals. New embassies and air routes are opening up. The continent’s new Chinese elite can be seen everywhere, shopping at their own expensive boutiques, driving Mercedes and BMW limousines, sending their children to exclusive private schools.

The pot-holed roads are cluttered with Chinese buses, taking people to markets filled with cheap Chinese goods. More than a thousand miles of new Chinese railroads are crisscrossing the continent, carrying billions of tons of illegally-logged timber, diamonds and gold.

The trains are linked to ports dotted around the coast, waiting to carry the goods back to Beijing after unloading cargoes of cheap toys made in China.

Confucius Institutes (state-funded Chinese ‘cultural centres’) have sprung up throughout Africa, as far afield as the tiny land-locked countries of Burundi and Rwanda, teaching baffled local people how to do business in Mandarin and Cantonese.

Massive dams are being built, flooding nature reserves. The land is scarred with giant Chinese mines, with ’slave’ laborers paid less than  $1 a day to extract ore and minerals.

Pristine forests are being destroyed, with China taking up to 70 per cent of all timber from Africa.

All over this great continent, the Chinese presence is swelling into a flood. Angola has its own ‘Chinatown’, as do great African cities such as Dar es Salaam and Nairobi.

Exclusive, gated compounds, serving only Chinese food, and where no blacks are allowed, are being built all over the continent. ‘African cloths’ sold in markets on the continent are now almost always imported, bearing the legend: ‘Made in China’.

From Nigeria in the north, to Equatorial Guinea, Gabon and Angola in the west, across Chad and Sudan in the east, and south through Zambia, Zimbabwe and Mozambique, China has seized a vice-like grip on a continent which officials have decided is crucial to the superpower’s long-term survival.

‘The Chinese are all over the place,’ says Trevor Ncube, a prominent African businessman with publishing interests around the continent. ‘If the British were our masters yesterday, the Chinese have taken their place.’

Likened to one race deciding to adopt a new home on another planet, Beijing has launched its so-called ‘One China In Africa’ policy because of crippling pressure on its own natural resources in a country where the population has almost tripled from 500 million to 1.3 billion in 50 years.

China is hungry – for land, food and energy. While accounting for a fifth of the world’s population, its oil consumption has risen 35-fold in the past decade and Africa is now providing a third of it; imports of steel, copper and aluminum have also shot up, with Beijing devouring 80 per cent of world supplies.

Where will it all end? As far as Beijing is concerned, it will stop only when Africa no longer has any minerals or oil to be extracted from the continent.

The people of this bewitching, beautiful continent, where humankind first emerged from the Great Rift Valley, desperately need progress. The Chinese are not here for that.

They are here for plunder. After centuries of pain and war, Africa deserves better.