x Abu Dhabi, UAEWednesday 26 July 2017

China's economic recovery a tribute to Keynes

Comment The Chinese invented gunpowder, the compass, even toilet paper: now with a glimmer of economic recovery, it might even lay claim to Keynesianism.

China's 4 trillion yuan (Dh2.15bn) economic stimulus package would have made John Maynard Keynes, the British economist who advised governments to fight recession with spending, proud.
China's 4 trillion yuan (Dh2.15bn) economic stimulus package would have made John Maynard Keynes, the British economist who advised governments to fight recession with spending, proud.

The Chinese invented gunpowder, the compass, even toilet paper. With new data confirming that the country has emerged from the global economic crisis, Beijing may start claiming to have invented Keynesianism, or at least to have perfected it. China's 4 trillion yuan (Dh2.15bn) economic stimulus package would have made John Maynard Keynes, the British economist who advised governments to fight recession with spending, proud. Many governments are trying Keynesian stimulus. China appears to be the only major economy to make it work. Its recovery is good news for the economies that supply it. Chinese demand is buoying South Korea and should also boost demand for oil. But China is not big enough, nor hungry enough, to save the world from continued weakness in the world's three largest economies - the US, Japan and Europe. While never technically slipping into recession, China has been suffering from "recessionary growth". Its population is growing so fast that economists say it needs growth of at least 8 per cent to keep unemployment from rising. Using cheap labour to become the world's factory used to do the trick, but with the global crisis demand for Chinese exports collapsed. China's Communist leadership has an advantage over policy makers elsewhere: it does not have to push policies through a fractious legislature. It does not have to persuade banks to lend. It ordered them to. That level of control makes some economists suspicious. Many have in the past accused China of fudging GDP numbers. But few dispute China's triumph now. By pumping state money into its rickety infrastructure, the government has pumped up economic growth. China's quickened GDP growth was accompanied by higher industrial output, rising household incomes and increased consumer spending. Its success in substituting domestic demand for exports may prove the year's greatest economic achievement. warnold@thenational.ae