At a time when major infrastructure projects are being put off around the world, China said it would spend an estimated $586 billion — roughly 7 percent of its gross domestic product — over the next two years to construct new railways, subways and airports and to rebuild communities devastated by an earthquake in the southwest in May.
We’ll see whether Obama’s stimulus plan will be more cash handouts, or infrastructure investment. Infrastructure takes a little longer to trigger activity, but has a much better long-term prospect compared to handing cash out to consumers. The Bush administration’s stimulus package was used by consumers to pay down debt for the most part. If another cash handout is used that way, it won’t have much stimulus effect.
I think China’s got the right idea here.