by Calculated Risk on 11/09/2008 10:49:00 AM

From the WSJ: China Announces $586 Billion Stimulus Package

China's government announced a two-year stimulus exceeding a half-trillion dollars to offset the impact of slowing global growth ...

Just a year ago, China had adopted an unprecedented "tight" monetary policy, a step up in its three-year effort to keep the fast-growing economy from barreling out of control because it was expanding too quickly.

Professor Roubini cautioned last week about a hard landing in China (Note: Roubini argues that China's economy needs to grow at more than 6% per year to absorb the about 24 million workers joining the labor force every year): The Rising Risk of a Hard Landing in China: The Two Engines of Global Growth – U.S. and China – are Now Stalling

In conclusion the risk of a hard landing in China is sharply rising; a deceleration in the Chinese growth rate to 7% in 2009 - just a notch above a 6% hard landing – is highly likely and an even worse outcome cannot be ruled out at this point. The global economy is already headed towards a global recession as advanced economies are all in a recession and the U.S. contraction is now dramatically accelerating. The first engine of global growth – the U.S. on the consumption side – has now already shut down. The second engine of global growth – China on the production side – is also on its way to stalling. Thus, with the two main engines of global growth now in serious trouble a global hard landing is now almost a certainty. And a hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters. The sharp recent fall in commodity prices and the near collapse of the Baltic Freight index are clear signals that Chinese and global demand for commodities and industrial inputs is sharply falling. Thus, global growth – at market prices – will be close to zero in Q3 of 2008, likely negative in Q4 of 2009 and well into negative territory in 2009. So brace yourself for an ugly and protracted global economic contraction in 2009.