But achieving this outcome will require a demand boost. Lack of effective demand has impeded China’s growth for years, and the pandemic has made the situation much worse.
FILE PHOTO: People wearing face masks are seen at a main shopping area after the lockdown was lifted in Wuhan on Apr 14, 2020. In China, fixed-asset investment consists mainly of three categories: Real estate, manufacturing, and infrastructure. Only since 2018 has infrastructure investment growth fallen rapidly to low-single-digit rates, largely as a result of deliberate policy choices.Today, Chinese policymakers should draw several lessons from the implementation of the 2008 stimulus package.
China still has sufficient financial resources to support a big infrastructure investment drive, but this time the central government should be responsible for funding the bulk of it.When the Chinese government announced early this year that it was aiming for a total budget deficit in 2020 of 3.76 trillion yuan, equivalent to 3.6 per cent of GDP, it implicitly assumed that nominal GDP would grow by 5.4 per cent.
That would make it impossible for China to create as many jobs as planned, and would also significantly increase its financial vulnerability.
Source: News Formal (newsformal.com)
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