- Yu Yongding writes in Project Syndicate that China can still manage to achieve its GDP growth target with more fiscal stimulus.
- A former PBOC adviser said deflation should help the country inject support without fueling inflation.
- As consumption growth slows, the country needs to increase infrastructure investment.
China appears to be stuck in another economic crisis this year, but its outlook is brighter than it seems, writes a former People’s Bank of China adviser.
As long as the Chinese government remains committed to fiscal stimulus, the country could be on track to achieve its annual GDP growth target of 5% this year, Yu Yongding wrote in Project Syndicate.
The Chinese government has already enacted policies to signal its desire to expand economic stimulus, including issuing $137 billion in government bonds last year. It recently lowered bank capital requirements to increase liquidity in the economy by $140 billion.
Yongsada’s forecast stands apart from less optimistic forecasts, such as the International Monetary Fund’s 4.6% growth forecast. He also seemed undeterred by high local debt and a volatile real estate sector, noting that these were manageable problems.
“The Chinese government has the financial resources necessary to meet these challenges head-on,” he wrote. “By implementing expansionary fiscal and monetary policies and pursuing meaningful reforms, China is well positioned to reverse a decade of economic stagnation in 2024 and maintain robust growth over the next few years. right.”
In 2023, China’s consumption accounted for 82.5% of GDP expansion. However, this momentum is unlikely to sustain, and with China’s net export growth already declining, Beijing will need to increase infrastructure investment by more than 10%.
This is helped by the fact that China’s economy is facing double deflation, with both the consumer price index and the producer price index in deficit, Yongding wrote. This means that the Chinese government can inject significant fiscal stimulus without worrying about inflation.
Therefore, China should set an inflation target of 3% to 4% and allow the People’s Bank of China to ease monetary policy. If previously issued bonds are insufficient to finance infrastructure investment, the central bank can also buy bonds on the open market.
“Indeed, infrastructure investments tend to be unprofitable and do not generate significant cash flow. Therefore, such investments should be financed directly from the government budget,” Yongsada said. “But to ensure China meets its infrastructure needs, policymakers need to invest in efficient and high-quality projects.”
According to Yongding, China’s infrastructure development still lags behind in important areas such as healthcare, education, and transportation. Some of its facilities lag behind even developing countries.