Demystifying China’s Fiscal Stimulus

Demystifying China’s Fiscal Stimulus

China's government economic stimulus package in 2008-09 appears to have worked well. It seems to have been about the right size, included a number of appropriate components, and was well timed. Its subnational component was designed to maximiz...

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Bibliographic Details
Main Authors:	Fardoust, Shahrokh, Lin, Justin Yifu, Luo, Xubei
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	AGGREGATE EXPENDITURE AUCTION BACKED BONDS BALANCE SHEET BANK BORROWING BANK LENDING BANK LOANS BANK POLICY BANKING SECTOR BANKING SYSTEM BINDING CONSTRAINT BONDS BUDGET SURPLUS BUDGETARY EXPENDITURES BUSINESS CYCLE CAPITAL FLOWS CENTRAL AUTHORITIES CENTRAL GOVERNMENT CENTRAL GOVERNMENT GUARANTEE CENTRAL GOVERNMENT REVENUES CENTRAL GOVERNMENT SPENDING CITIES COMMERCIAL BANKS COMMERCIAL LOANS COMPARATIVE ADVANTAGES CONSUMPTION EXPENDITURE CONSUMPTION SMOOTHING CONTINGENT LIABILITIES CORPORATE DEBT CORPORATE INVESTMENT CORPORATE SAVING CREDIT MARKETS CREDITORS CURRENCY CURRENT ACCOUNT SURPLUS DEBT CRISIS DEBT LEVEL DEBT RATIO DEBT SERVICE DEBTS DEFICITS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT BANK DOMESTIC BANK DOMESTIC BANKING EMERGING ECONOMIES EMERGING MARKETS EMPLOYMENT EQUIPMENT EXPANSIONARY FISCAL POLICY EXPENDITURE EXPORTERS EXTERNAL DEBT FEDERAL COUNTRIES FEDERAL COUNTRY FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL TRANSFERS FINANCES FINANCIAL CRISIS FINANCIAL MARKETS FINANCIAL RESOURCES FISCAL BALANCE FISCAL CAPACITY FISCAL DECENTRALIZATION FISCAL DEFICIT FISCAL FEDERALISM FISCAL INSTITUTIONS FISCAL MANAGEMENT FISCAL PERFORMANCE FISCAL POLICIES FISCAL POLICY FISCAL SPACE FISCAL SUSTAINABILITY FISCAL TRANSFERS FIXED ASSETS FIXED INVESTMENT FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES FOREIGN MARKETS GLOBAL ECONOMY GOVERNMENT BORROWING GOVERNMENT BUDGET GOVERNMENT DEBT GOVERNMENT EXPENDITURE GOVERNMENT EXPENDITURES GOVERNMENT FINANCE GOVERNMENT FINANCES GOVERNMENT FINANCING GOVERNMENT INTERVENTION GOVERNMENT INVESTMENT GOVERNMENT REVENUE GOVERNMENT REVENUES GOVERNMENT SPENDING HOLDING HOUSEHOLD INCOME HOUSEHOLD SAVING HOUSING HUMAN CAPITAL INCOME INEQUALITY INDEBTEDNESS INFLATION INFLATIONARY PRESSURES INFORMATION SYSTEM INFRASTRUCTURE INVESTMENT INFRASTRUCTURE INVESTMENTS INSURANCE INTEREST RATE INTEREST RATE SPREADS INTEREST RATES INTERGOVERNMENTAL FISCAL RELATIONS INTERGOVERNMENTAL TRANSFER INTERGOVERNMENTAL TRANSFERS INTERNATIONAL BANK INTERNATIONAL CREDIT INTERNATIONAL MARKET INTERNATIONAL TRADE INVESTING INVESTMENT CLIMATE INVESTMENT CORPORATION INVESTMENT PROJECTS INVESTMENT PURPOSES ISSUANCE LABOR MARKET LAND AS COLLATERAL LAND VALUES LEVEL OF DEBT LEVEL OF GOVERNMENT LIQUIDITY LIQUIDITY CONSTRAINTS LOAN LOAN CATEGORIES LOCAL DEBT LOCAL GOVERNMENT LOCAL GOVERNMENT BORROWING LOCAL GOVERNMENT EXPENDITURE LOCAL GOVERNMENT FINANCE LOCAL GOVERNMENTS MACROECONOMIC EFFECTS MARKET ECONOMY MIGRANT LABOR MONETARY FUND MONETARY POLICIES MONETARY POLICY MORAL HAZARD NATIONAL INVESTMENT NEGATIVE SHOCKS OFF BALANCE SHEET OIL PRICES OWNERSHIP STRUCTURE PENSION PENSION FUNDS POLICY MAKERS POLICY REFORMS POLICY RESPONSE POLITICAL ECONOMY POLITICAL STABILITY PRIVATE CAPITAL PRIVATE INVESTMENT PROFIT OPPORTUNITIES PROVINCES PROVINCIAL EXPENDITURE PROVINCIAL GOVERNMENTS PROVINCIAL INVESTMENT PROVINCIAL REVENUE PUBLIC DEBT PUBLIC FINANCE PUBLIC FINANCES PUBLIC INVESTMENT PUBLIC SECTOR SPENDING RATE OF RETURN REAL EXCHANGE RATE REDISTRIBUTION RESERVE RESOURCE ALLOCATION RETURN RETURNS REVENUE SHARING REVENUE SOURCES SAFETY NET SOCIAL SERVICES SOVEREIGN DEBT SUBNATIONAL SUBNATIONAL EXPENDITURES SUBNATIONAL FINANCE SUBNATIONAL GOVERNMENT SUBNATIONAL GOVERNMENT EXPENDITURE SUBNATIONAL GOVERNMENT EXPENDITURES SUBNATIONAL GOVERNMENTS TAX TAX ADMINISTRATION TAX BASE TAX BASES TAX INCENTIVES TAX REFORM TAX REFORMS TAX REVENUE TAX REVENUES TAX SHARING TAX SHARING SYSTEM TAXATION TOTAL GOVERNMENT EXPENDITURE TOTAL GOVERNMENT EXPENDITURES TOWN TRADE SECTOR TRANSPORT TREASURY TREASURY BONDS WAGES
Online Access:	http://documents.worldbank.org/curated/en/2012/10/16816609/demystifying-chinas-fiscal-stimulus http://hdl.handle.net/10986/12066

Description
Summary:	China's government economic stimulus package in 2008-09 appears to have worked well. It seems to have been about the right size, included a number of appropriate components, and was well timed. Its subnational component was designed to maximize the impact of the stimulus package on the economy and minimize the potential procyclical elements that are usually built into subnational fiscal mechanisms in federal countries. Moreover, China's massive fiscal stimulus played an important role in the overall recovery of the global economy. Using a simple analytical framework, this paper focuses on two key factors behind the success of the stimulus: investments in bottleneck-easing infrastructure projects and countercyclical nature of subnational spending based on the assumption that well-chosen infrastructure projects could improve business climate and thereby crowd in the private investment. The paper concludes that the expansionary subnational government spending played a key role in strengthening the overall impact of the stimulus and sustaining growth. It also highlights the importance of public investment quality and cautions about the sustainability of local government financing through the domestic banking system and increases in local governments off balance sheet or contingent liabilities. These lessons may be of particular relevance today for China, as well as other countries, in formulating policy response to another global economic slowdown or crisis, possibly as a result of the Eurozone turmoil. For China, investing in urban infrastructure and green economy, as well as in higher quality and better targeted social services, will be crucial for improving income inequality and inducing a more inclusive growth path.

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