China’s “special” stimulus

CHINA ADVISORY - Report 01 May 2020 by Andrew Collier

China relies less on monetary stimulus through the banks and more on fiscal expansion through targeted investments. Even when it supplies credit to the banks through a monetary expansion, as it is doing currently through various programs, these come with fiscal restrictions – orders from the regulators about lending.

Meanwhile, fiscal stimulus is becoming increasingly important. One of the most important fiscal stimulus programs is through the issuance of “special” construction bonds. These bonds are a return to the investment schemes of the decade ago post-financial crisis. Many rely on expanded financial powers of local government companies – the famous Local Government Financing Platforms. Analysis of these institutions and their financial history shows how important they are to the growth of the economy and how their weak financial situation is likely to drag down any future stimulus measures.

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