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China’s Fiscal Dilemma (Project Syndicate, 6 min read) Yu Yongding, former monetary policy committee member of PBoC, highlights the dilemma the Chinese government faces in H2 2020. If it adopts an expansionary fiscal policy, public finance will worsen rapidly. But if the government reduces public expenditure it risks the economy growing less than 2.5%. His stance? Adopt targeting infrastructure investment (financed by government bonds).
China’s Economy Needs Institutional Reform Rather than Additional Capital Deepening (CEFIP, 14 min read) For China, the fastest way to develop in the 1980s and 1990s was to have rapid investment growth. But now it has reached its ‘Hirschman level’ (capital investments have become concentrated). Economist Michael Pettis believes the only way to grow rapidly now is to have necessary institutional reforms that allow Chinese workers and businesses to ‘absorb the higher levels of investment growth.’