India & China: Who Needs $586 Billion Stimulus, Anyway? (Correct)

Posted by: Bruce Einhorn on January 25, 2010

(Corrects India GDP figure in third paragraph and adds information on Indian stocks.)

No government responded more aggressively to the economic crisis than China. Within weeks of the Lehman Brothers’ bankruptcy, Beijing had a huge stimulus package in the works, with the government pumping $586 billion into the economy and the country’s banks (most of them state-owned) helping out with another $1.3 trillion-plus in new loans.

While China focused all its firepower on combating the crisis, India seemed to take a gentler approach. New Delhi announced some tax cuts as well as several stimulus packages. The combined price tag of the government’s stimulus packages was $80 billion. Throw in $14 billion in other government policies to help people in the countryside and the total amount of spending is still puny compared to Beijing’s, even after you adjust for the fact that India’s economy is about one quarter the size of China’s.

So which country got the most bang for its buck? Surprise – I think it could be India. Third quarter GDP was up 7.9%. That’s less than the 10.7% fourth-quarter growth in China, but India’s government didn’t spend nearly as much to get it. Also, for the first time since 2006, investors seem more upbeat about Indian companies than Chinese ones, with the Sensex trading at 20 times estimated profits, compared to 18 times estimated earnings for the Shanghai index, according to Bloomberg News. Can India keep it up? Indian stocks have been slumping lately, as investors worry the central bank could raise interest rates as early as this Friday. India’s hot streak might not last long, but for now it does seem New Delhi deserves more credit than it has received for its handling of the crisis.

Reader Comments

Newbie

January 25, 2010 9:29 AM

I am not all surprised.

Arn

January 25, 2010 11:08 PM

Ummmm Bruce. Where did you get 10.7 for India? India has never and likely will not grow that fast for quite some time. Source? Doesn't seem plausible.

Raj

January 26, 2010 2:46 AM

The 10.7 percent was for China ... Actually India has grown at 10.7 % in quarter before though it wasn't sustained :) ...

Steven

January 26, 2010 2:53 AM

Also, for the first time since 2006, investors seem more upbeat about Indian companies than Chinese ones, with the Sensex trading at 20 times estimated profits, compared to 18 times estimated earnings for the Shanghai index, according to Bloomberg News.
-----------------------
Isn't China's stock a bubble??? HAHA, no matter what, every number is bad. Not very long ago, many cliamed tha China's shanghai index is more than 3000, and it was a bubble and would crash soon. Now, shanghai index is still abobe 3000, and now it is said not attractive.

Bruce Einhorn, which business school did you graduated from? I am just a little bit curious. You don't have to tell me.

@Arn

January 26, 2010 3:14 AM

It turns out that you've been very prescient. Like you, I'm not surprised it must be a mistake though.

International investor

January 26, 2010 3:18 AM

So Indian stocks now trade at 20x earnings while Chinese stocks only trade at 18x. If anyone still thinks there is a bubble in Chinese assets, isn't India a much bigger bubble than China considering that REAL growth in India is quite a bit slower than that of China?

International investor

January 26, 2010 3:34 AM

I just did a bit of research. Indian inflation rate reached 13.5% yoy by December 09 despite delivering only 7.9% during the fourth quarter.
http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?symbol=INR

On the other hand,China delivered 10.7% growth in the fourth quarter with just 1.9% inflation. http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=CNY

Just compare the two above charts. Indian inflation is consistently so much higher than that of China. Anyone worrying about a China bubble should look at the Indian bubble instead. It's time to short your Indian stocks!

Economist

January 26, 2010 3:40 AM

India did not have much of a stimulus because it could not afford a stimulus. Not only because it did not have the money. Inflation in India is also much higher than the US, Europe, China or Japan. This means that the production constraints in India is far worse than anyone expects. New financial capital invested in India will not stimulate production but instead go towards boosting inflation.

Paul

January 26, 2010 4:07 AM

So who needs the stimulus? Many analysts have already pointed out last year that much of China's so-called $586b investment had been pre-planned projects anyway. They are things like reconstruction of Sichuan following the disastrous earthquake as well as other new infrastructure development in rural areas. The skeptics last year correctly pointed out that there was no substantial NEW money in the stimulus package. It was only promoted as a stimulus package to foster confidence amid the looming global slump that everyone expects. And it works very well.

joke

January 26, 2010 10:36 PM

this magazine is a joke. No wonder its master has to sell it to Bloomberg. It looks like its new master is not doing much better.

Hippo

January 27, 2010 12:11 AM

Bruce Einhorn, I know you ban those comments that are not favorable to you, like your embarrassing mistake on this blog subject. Talk about free speech !!! ;-) The mistake actually is all about your credibility! Why don't you just close this blog subject i.e. India & China: Who Needs $586 Billion Stimulus, Anyway? since based on your previous premise (10.7% GDP growth for India), it does not apply anymore ?

Vanamali

January 27, 2010 9:29 AM

One thing this is very consistent in all these comments is that the chinese seem to almost choke to death to hear anything nice said about another country, to hear maybe they came in second. Come on, guys, a rich china, India and japan will benefit everyone. Stop being so greedy.

Prasad Kotikalapudi

January 28, 2010 12:46 AM

India's growth is organic. Stimulus/no-stimulus, it remains the same. Compared to other countries, the subsidies, stimulus packages doled out are next to nothing in India. Wheels always keeps moving as the Government intervention is very minimal. Yes there was some distrurbance in the growth pattern during the last fiscal on the export oriented organizatios. But the domestic consumption has offset that impact substantially. Having said that this insularity needs to be strengthened.

@Vanamali

January 28, 2010 4:46 PM

"Greedy" is not correct term. "Drive" is. China and the Chinese people are not going to stop here and now. Their GDP per capita is only about 1/10 of the average American. They intend to grow, work until they have the highest GDP per capita. You aint seen nothing yet!

@Vanamali

January 30, 2010 5:46 AM

Both greed and drive drive China. In Asia we say that they have a Kiasu mentality to win at all costs at the expense of others

C. H. Ng

February 2, 2010 1:14 AM

"Kiasu" is a Hokkien (one of the Chinese dialects) word which literally meant 'scared to lose'. We Malaysian Chinese started using this word to describe our counterparts in Singapore as we are sort of despise their kind of mentality for wanting to win at all costs or ahead of us all the times.

I am surprised it's used here in this blog because I think it's not suitable to describe the mentality of the mainlander Chinese. 'Drive' & 'Face' should be more appropriate.

ImnIndian

February 16, 2010 5:30 AM

Guys!! just relax. this century will surely belong to China & India. i hope to live in an era when both the countries are developed like their western counterparts.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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