The record photo shows a worker counting Renminbi Chinese currency banknotes at a bank in Tancheng district in Linyi city in eastern China’s Shandong province. Photo: Xinhua
Given that the risk of a global economic recession, the Russian-Ukrainian conflict and the resumption of the epidemic in some regions have put the Chinese economy under great pressure, a proactive fiscal policy, not a monetary stimulus, is urgently needed to stabilize the macroeconomic situation. At a key forum on Saturday, leading Chinese economists said they would boost domestic demand and consumption.
At a time when Chinese exports are expected to face great uncertainty, it is necessary to increase confidence in domestic demand, noted Shen Jianguang, chief economist at JD.com at the Tsinghua PBCSF Chief Economists Forum in Beijing, which focused on Chinese economic and political outlook in the middle of the turbulent year 2022.
Growth in Chinese exports fell to 3.9 percent year on year in April, the lowest level in almost two years, according to the latest customs data. In 2021, Chinese exports jumped 21.1 percent year on year, which is a big boost to the country’s economic growth last year.
The sharp contrast is sufficient to suggest that the external environment has changed dramatically this year. Rocket inflation in the United States has forced the Federal Reserve to raise interest rates, which should put great pressure on the US economy in the second half of 2022. Meanwhile, the Russian-Ukrainian conflict has hit the European economy very hard by exacerbating the region’s energy crisis.
“The possibility of a global recession next year needs to be considered and the potential impact will be felt on Chinese exports this year,” Shen said.
The old growth model, which relies on external demand to drive economic growth, is no longer sustainable and China needs to drive domestic demand more through consumption than investment, Li Xunlei, chief economist at Zhongtai Securities, told the forum.
Li also pointed out that China has a huge consumer market due to its large population, which has indeed contributed to its rapid economic growth over the years. But as Chinese households spend more on investing and buying homes, there is a problem of low consumption, which needs to be improved through appropriate policies.
While it may seem inevitable that China will put in place some kind of stimulus program to address the challenges and risks, economists generally believe that this stimulus should be different this time than flooding the market with excess liquidity through monetary easing as in the past.
According to Lu Ting, China’s chief economist at Nomura, given the relatively limited room for monetary easing, China will need to adopt a more proactive fiscal policy and optimize fiscal spending to stabilize expectations.
If China currently only faces economic problems, then monetary stimulus would be enough to solve the problem. But the epidemic and the Russian-Ukrainian conflict are not economic problems, although they have seriously affected the sustainable development of the economy, Li noted. So the use of economic instruments, such as monetary policy, will not be effective in the current situation. On the contrary, fiscal policy can address more structural problems.
As for specific measures, Shen suggested that consumption bills could be used to stimulate spending, which will not only help the economy recover in the short term, but is also key to boosting confidence.