China Still Needs Expansionary Economic Policy By Yu Yongding

To consolidate its post-pandemic growth momentum in 2021, China should not be in a hurry to exit an expansionary fiscal and monetary policy. The government may need to issue more bonds than expected, and the People’s Bank of China may need to implement quantitative easing to facilitate this.

BEIJING – The Chinese Economy increased by 6.5% in the fourth quarter of 2020, which clearly indicates that it has restored of COVID-19 shock. The market consensus is that due to base effects, GDP growth has climbed to more than 18% year after year in the first quarter of 2021, and will decline steadily over the remaining three quarters of the year before finally leveling off.

Addressing this year’s National People’s Congress meeting last month, Premier Li Keqiang announcement that China’s growth target for 2021 is “above 6%”. While the economy’s growth momentum looks solid at the moment, there are signs that China could risk tightening fiscal and monetary policy too soon.

According to the finance ministry, general budget revenue will increase by 8.1% this year, while general budget expenditure will increase only 1.8%. Rarely does public expenditure grow so much more slowly than budget revenue. And while the government’s planned 2021 issuance of CN’s 7.2 trillion ($ 1.1 trillion) in bonds is still high, it is significantly lower than CN’s 8.5 trillion issued last year. At the same time, the People’s Bank of China (PBOC, the central bank) is expected to maintain its monetary policy, or even tighten it.

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