The secret to China's GDP growth rebound: stimulus

China's President Xi Jinping delivers a speech during the 6th BRICS summit in Fortaleza, Brazil on July 15, 2014. 

After a tough first quarter, China’s economy grew 7.5 percent this Spring – faster than most economists expected. The reason? Stimulus funding.

China’s government has injected significantly more money into the Chinese economy in the last few months, spending money on railway infrastructure, social housing projects, and public works projects; activity much of the country hasn’t seen since the big stimulus package of 2008 that was launched to cope with the global financial crisis. That stimulus package has lead to economic waste and bad debt.

As a result, many economists are waiting for more meaningful structural reforms to China’s economy. But others don’t see it that way.

"They want to walk this sort of very delicate balance between stimulating to ensure a basic seven, eight, nine percent nominal rate of GDP growth, and then on the other side, pushing through some reforms," says Standard Chartered’s Head of China research Stephen Green.

Those reforms have yet to take shape. So far, Xi Jinping’s government has been too busy expelling corrupt government officials as part of a wide-ranging anti-corruption campaign, which has also had a negative impact on China’s economy. But Green thinks we’ll soon see China’s government allowing private companies to open banks and begin lending, which he says would be a sign that bigger economic reforms are on their way.

 

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.

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