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Chapter 10:

Business Cycle

&

Fiscal Policy

China should lean more on fiscal policy to spur growth - central bank researcher

November 20, 2018

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With the Chinese economy growing at its weakest pace since the 2007 global crisis, authorities are expected to decide on further measures and to rely more on fiscal policy to spur bank lending, cut taxes and fast-track infrastructure projects. But business conditions are expected to get even worse due to the increased U.S. trade tariffs, raising questions over how much support will be needed to stabilise the economy. However, Xu Zhong, head of the People's Bank of China’s research bureau, is cautioning against fiscal stimulus that is too forceful since China has been working for several years to tackle the massive debt accumulated from past stimulus binges and deficit budgets. Instead, Xu proposes "more active fiscal policy. When the economy is going downward, recovery should precede reforms. Only when the economy operates normally can reforms be pushed forward effectively."

Glossary

1. Fiscal Policy

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            Government taxation, spending, and borrowing policies used to try to stabilize the economy.

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2. Infrastructure

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            The foundation of goods and services (such as roads, power grids, communications systems, schools, and hospitals) that allows an economy to operate efficiently.

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3. Debt

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           The total amount that a government owes on money it has borrowed to fund deficit budgets in the past.

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4.Deficit Budget

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           The situation that occurs when the government spends more than it collects in taxes, causing a shortfall or deficit, which it must cover through borrowing.

© 2019 Elaine Zhou

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