China is billing its plan for $586 billion in economic stimulus over the next two years as a shot in the arm for other economies, too. Experts aren't so sure. In addition to cutting taxes for exporters, the plan lifts spending on infrastructure. This, in turn, could boost demand for raw materials and imported items...

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China is billing its plan for $586 billion in economic stimulus over the next two years as a shot in the arm for other economies, too. Experts aren’t so sure. In addition to cutting taxes for exporters, the plan lifts spending on infrastructure. This, in turn, could boost demand for raw materials and imported items like machinery.

The measures are almost certain to help China. Its once high-flying stock market is down 60 percent this year on worries that demand for its exports will slow along with the global economy. In the first nine months of 2008, the country sent just 17.5 percent of its exports to the U.S., compared with 21 percent in the comparable 2006 period, notes Northern Trust analyst Asha G. Banglore.

China has also become a big importer. Gerry Sparrow, portfolio manager of Sparrow Growth Fund (SGFCX), expects the stimulus package to benefit energy and materials stocks, like BHP Billiton (BHP), in addition to Chinese companies. “The one thing the government can do is willfully continue to spend,” he says, even if consumers cut back.

Even before the package was announced, David Hogan, client-portfolio manager of Laudus Mondrian Emerging Markets (LEMIX), was boosting holdings of Chinese telecommunications, bank and energy stocks. The International Monetary Fund expects economic growth to ease but still calls for “very robust growth, especially compared to most Western countries,” Hogan says.

Northern Trust’s James Pressler notes China could wind up funding part of the package by selling off some U.S. Treasury holdings, which “would be a bad deal for the U.S.” But Carl B. Weinberg of High Frequency Economics says China’s surplus, which will rise to $300 billion by year-end, could be used to finance the plan.