China faces a problem of internal balance — inflation is low, and youth unemployment is high. China also faces a problem of external balance — even before the current slowdown. China’s trade surplus (using the customs data) was at a record high v WGDP
Sometimes macroeconomics is not hard: there is only one policy that moves China toward both internal and external balance, a large stimulus directed at raising household consumption 2/
The FT was on top of this almost a year ago — the policy recommendations here still ring true.
Xi Jinping’s last chance to revive the Chinese economy
Chinese policy makers though seem incapable of making what should be a simple policy choice, & sometimes seem to have talked themselves into believing they have less fiscal space than they do. I hope this was part of the conversation with Secretary Yellen last week!
Fiscal stimulus is improbable. China’s broad based fiscal deficit is about 10% of the total GDP, room for more stimulus is small. China always thinks that with no money or social safety net, the Chinese must work to earn the bread. So the next step is to cut personal income?
No, cutting income would be the wrong step/ central gov fiscal deficit, as officially measured, is 3 pp of GDP. am aware of the limits of the measure. but also know that the space for fiscal stimulus now is at the center see last line (from IMF a4 for ’23).
