Abstract
The root cause behind the Chinese economy’s slowing down in 2012 lies in a “one-size-fits-all” approach to macroeconomic management. This approach must be abandoned if domestic demand is to be effectively boosted. A superior approach would involve the introduction of policies tailored to the specific needs of the economy. It would call for some combination of fiscal and tax measures to stimulate investments, to enhance the profitability of non-Internet-based economic sectors, to ease lending restrictions, and to increase the growth rate of the money supply. There is little risk of inflation in China in the short term, but deflation is a real threat.
Highlights
The root cause behind the Chinese economy’s slowing down in 2012 lies in a “one-size-fits-all” approach to macroeconomic management. This approach must be abandoned if domestic demand is to be effectively boosted
It would call for some combination of fiscal and tax measures to stimulate investments, to enhance the profitability of non-Internet-based economic sectors, to ease lending restrictions, and to increase the growth rate of the money supply
Why? It is because macroeconomic conditions fluctuate so much that no single rule can apply to every situation
Summary
The root cause behind the Chinese economy’s slowing down in 2012 lies in a “one-size-fits-all” approach to macroeconomic management. It would call for some combination of fiscal and tax measures to stimulate investments, to enhance the profitability of non-Internet-based economic sectors, to ease lending restrictions, and to increase the growth rate of the money supply. Even though it may seem as though weak domestic demand is caused by restrictions on the housing industry and squeezes on demand for local financing, the real culprit is defective policies.
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