China Can’t Spend Its Way Out of Trouble
China’s prolonged reliance on fiscal stimulus has distorted economic incentives, fueling a housing glut, a collapse in prices, and spiraling public debt. With further stimulus off the table, the only sustainable path is for the central government to relinquish more economic power to local governments and the private sector.
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NEW DELHI – Progressive economists tend to view the massive stimulus package China deployed in response to the 2008-09 global financial crisis – which amounted to 12.5% of GDP – as a bold Keynesian masterstroke that every government should seek to emulate. The World Bank and the International Monetary Fund also sang China’s praises, as did developing economies that benefited from the resulting commodity boom.