Chinese economists criticise 4 trillion yuan stimulus policy

These comments from two Chinese economists at the Bo An Forum 2014, criticise China’s 4 trillion stimulus package in 2008. Although praised at the time by domestic and foreign media alike, domestic economists are now, in a similar fashion to the foreign economists, questioning the distortion effects of the stimulus package. The Chinese economists are naturally careful with the language they use, but given that the package was executed by a previous administration, now is the time to apply hard economic analysis to previous policy.

Economists repeatedly call into question the 4 trillion stimulus package.

Source: Securities Times, 2014-04-09

In a discussion held this afternoon at today’s Bo An Forum, the two economists Zhang Weiying and Chen Zhiwu criticised China’s 4 trillion stimulus package launched after the 2008 financial crisis. Zhang Weiying said the government at the time believed that by just spending money they could avoid an economic slump. This approach achieved its specified goal, but at the same time brought with it more serious problems. Chen Zhiwu said that even though the long term effects of the 4 trillion package on China are as yet unknown, China currently needs to adopt monetary and fiscal policies in order to reverse the structural damage caused by the 4 trillion programme.

Zhang Weiying: Government intervention misled entrepreneurs

Zhang Weiying pointed out that using demand and supply management is completely misleading, essentially is an economy driven by the government or by entrepreneurs? Keynesian economics considers the economy is driven by the government. The government controls investment, consumption, exchange rate, and currency. But afterwards, in determining how the economy recovers, the most important driver lies in the entrepreneurial spirit, and demand. And in practice, Keynesian thinking has had harmful effects on the Chinese economy over the past few years, with government intervention misleading entrepreneurs. Genuine economic demand ought to stem from entrepreneurial creativity, not from the government.

Zhang Weiying said if monetary policy is used to create demand, or if other government means are used to create demand, then both spell disaster. If entrepreneurs are really allowed to create demand, then the demand created is real, so not demand derived from monetary easing, then the economy can enjoy sustainable development.

“Of course entrepreneurial judgement can lead to mistakes, but it’s evident that government judgement can sometimes produce greater mistakes. If entrepreneurs collectively make misjudgements which lead to a financial crisis, then it’s only because they’ve been misled by government policy.”

He further added, government intervention inhibits entrepreneur’s vitality, creating further problems. “After the 2009 financial crisis, our government executed Keynesian demand management policies, and assumed that merely by spending money an economic slump could be avoided. This line of thinking achieved its specified aim, but brought along with it problems, problems that are more serious than the problems it solved.”

“In 2009, I warned the government at the time not to provide stimulus, those enterprises that are bankrupt, let them go bankrupt. It’s only under these circumstances the Chinese entrepreneurial spirit can shine. Government demand management often restrains entrepreneurial thinking, misleading entrepreneurs into making wrong decisions. In order to meet certain targets, governments will often adopt the wrong policy. If the economic growth doesn’t change this year, then 2 years later there’ll be a catastrophic fall in growth.”

Chen Zhiwu: Still hard to tell if it’s possible to undo the effects of the 4 trillion package and ensure a soft landing.

Chen Zhiwu said, even though it’s still hard to tell the long term effects on China of the 4 trillion stimulus package, the pressing matter for China currently is how to use monetary and fiscal policy to turn around the structural damage caused by the 4 trillion package. But in the end whether or not it’ll be a soft landing, is still hard to tell at the moment.

Chen Zhiwu added, the 4 trillion package quickly lifted the Chinese economy in the latter months of 2008, starting a steady period of economic growth, in 2009 enjoying a year of over 10% economic growth, with 2010 much the same. In Beijing many scholars slowly began singing praise of the Beijing model, singing loud, and in some cases writing books. But in 2014, in fact beginning in 2013, there’s been a rethink, in one sense, what’s the long term effect of the drastic 4 trillion spent by the government at the time? At the moment it’s still too early to tell. Currently we are looking for ways, using monetary and fiscal policy, to as far as possible turn around the long term structural damage caused by the 4 trillion package. But finally, whether or not there’ll be a soft landing, at this moment there’s no way of knowing, but will ultimately allow us to see the result of the China model.

He further added, China, US and Europe all had different approaches in handling the 2008 financial crisis. China was completely led by the government, the US was mainly led by the market, and in Europe a combination of both.

America’s pain arrived quickly but lasted briefly, but thereafter the whole economy especially the private sector recovered, not stopping since 2009. And in Europe, the government intervened, particularly in the labour market, and more so than in China or the US, so the EU economy has yet to fully come out of the financial crisis.

Chen Zhiwu said, “These are three different systems, and everyone has their own opinion. In the end, as to which system we really like, Europe, the US or the China model, you can more or less guess which one I prefer, but I’m not going to say.”


经济学家连番质疑四万亿计划 或导致结构失调

2014-04-09 18:33 来源:证券时报网综合








陈志武:扭转4万亿影响 能否软着陆还不知道






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