Unleashing China's Economic Potential: Crafting a Strategic Stimulus Blueprint

China's economic trajectory is at a pivotal juncture, prompting a critical examination of fiscal policies. The recent translation of Barry Eichengreen's book on public debt sheds light on the delicate balance between fiscal caution and growth stimulation. While the government has taken commendable steps, challenges persist in refloating the economy.

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I. The Shift in Fiscal Sentiment:

Earlier this year, China adjusted its budget-deficit target to 3.8% of GDP, signaling a departure from previous fiscal restraint. This move, coupled with the issuance of "refinancing bonds" by provinces, aims to alleviate the burden of costly debts incurred by local infrastructure firms. Financial regulators also emphasize meeting the reasonable financing needs of property developers. However, questions linger regarding the adequacy of this stimulus.

II. The Shadow of Past Stimulus:

The fiscal reticence observed can be traced back to the aftermath of the 2008 financial crisis, where China implemented a 4 trillion yuan stimulus package. Despite its success in reviving growth, subsequent issues such as favoring state-owned enterprises and crowding out private investment have left a lasting stigma. Learning from history, China's government treads cautiously to avoid a repeat of excessive responses.

III. Addressing Flaws in Previous Stimulus:

Research reveals that the 2008 stimulus, while beneficial, had unintended consequences. Credit supply favored state-owned enterprises, and capital costs impacted private firms' R&D spending. However, it is crucial to recognize that the flaws of the past response do not negate its overall positive impact. Policymakers must now focus on crafting a more nuanced and effective stimulus plan.

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IV. A Call for Innovative Stimulus:

Acknowledging the pitfalls of previous fiscal measures, there is a growing consensus that the next stimulus should embrace different fiscal machinery. Instead of favoring local governments' financing vehicles, policymakers could consider direct household support, mirroring successful models like Hong Kong's electronic consumption vouchers. This innovative approach ensures a targeted and impactful use of stimulus funds.


Fifteen years after the 2008 lending spree, China stands at a crossroads. The lessons learned from the past advocate for a strategic and innovative approach to stimulate economic growth. While public borrowing has its challenges, the key lies in crafting a stimulus blueprint that aligns with the evolving economic landscape. As the government navigates this delicate balance, the focus should not be on abandoning stimulus but on refining it to propel China towards sustained and inclusive economic prosperity.

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