Posted inAT+

Calls for new China debt boom miss the big picture

Prominent Chinese economist Yu Yongding is kicking the Beijing hornet’s nest with calls for forceful fiscal expansion at a moment when President Xi Jinping’s team is veering in the other direction.

Yu, a former top People’s Bank of China official who’s now with the Chinese Academy of Social Sciences, argues that the “key to success” lies in a policy shift to “use fiscal and monetary levers to respond to growth and price data. Should both growth and inflation be sluggish, fiscal and monetary expansion are in order.”

In Yu’s telling, the severity of headwinds bearing down on China require, in particular, a potent burst of public spending to restore demand and defeat deflationary forces. Instead, he worries, Xi’s economic team is far too focused on “supply-side” remedies like tax cuts – and at the expense that China’s potential growth would suffer in the long run. “Though few Western observers would acknowledge this,” Yu explains, “supply-side economics is more influential in China than in the US.”

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