Limits to China’s fiscal stimulus

CHINA FINANCIAL - Report 30 Mar 2020 by Michael Pettis

Special points to highlight in this issue:
• The debate about 2020 growth expectations continues to intensify in policymaking circles, with CICC reducing its 2020 GDP growth forecast last week from 6.1 percent to 2.6 percent.
• While many officials continue to call for China to return as quickly as possible to its original social and economic goals, with a massive fiscal stimulus if necessary, the Chinese economy faces four important constraints that it hadn’t faced in previous crises: it must reverse its consumption imbalance, its banks are insolvent, it must rein in debt creation and, most importantly, it does not have the monetary space to accommodate a significant monetary expansion.

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