China’s economic slowdown is polarising government advisers over the best way forward, with advocates of structural reforms now emerging from the shadows in a challenge to others calling for more state spending to shore up faltering growth.
The rare debate among advisers, who influence policy-making but do not wield direct power, comes as global markets scramble for clues on how authorities will halt a downturn that has left millions without jobs, forced investors to flee and the yuan to tank.
A dribble of piecemeal support measures from Beijing in recent months has raised questions about the tough choices China’s new economic leadership now faces over whether to prioritise short-term relief or long overdue reforms.
Advisers calling for immediate stimulus argue the central government’s low debt means it can shoulder the burden with municipalities to finance infrastructure and other spending to rev up activity. But pro-reform advisers argue the stimulus playbook that helped drive growth for decades has run its course and that bolder structural changes to the economy are now needed.
Both camps argue their proposals should be treated with urgency by policymakers, ahead of the annual Central Economic Work Conference, an agenda-setting gathering of top leaders expected in December.
“We need stronger stimulus policies and an overall plan, a package of macroeconomic policy measures,” said Yu Yongding, an influential government economist who previously advised the central bank.
“China should issue more government bonds to finance infrastructure investment, including more investment in public facilities such as hospitals and old people’s homes. China should not be afraid of increasing its budget deficit-to-GDP ratio and government bonds-to-GDP ratio,” Yu told Reuters.
China’s central bank is constrained in how much it can ease monetary policy amid fears a widening interest rate gap with the United States would trigger capital flight and yuan falls, Yu said.
We need to step up fiscal stimulus. There is room for the central government to step up spending given its sound fiscal position,” said an adviser who spoke on condition of anonymity.
The central government’s debt as a share of gross domestic product is just 21%, far lower than 76% for local governments, including their hidden debt.
