CHINA:

Government Spending and Fiscal Policy:

China had a very strict monetary policy in 2008, and changed it to active one over 2009 in order to
protect them against the 2008 economic crisis. They aimed to boost their internal demand. The
government started to increase its investment and the money thus generated is being put into
agricultural production, housing projects, rural areas, education and healthcare by the Chinese
government.
The government investment is used to revamp the areas that were affected by the 2007 earthquake on
the southeast of China. Mostly the government of China are investing in innovation and technology
which are they say are the most powerful tools for near future commerce, worldwide trading and
finally in public transportation.
The Chinese government wants to change its taxation system and reduce its structural taxes for the
corporate, stimulate the public consumption and encourage the firms to invest and create new jobs and
opportunities.
The Chinese Government’s notion to go forward with its fiscal policy is to improvise infrastructure
and support internal investments towards the side of the technology and innovation, also to support
those innovative projects whose aim is to reduce the energy consumption and contamination.
China maintained its policy over 2010 and 2011 to keep building and improve their main public
structure, the country was requesting new inversion projects to stimulate the firms and house holding
aspiration. They wanted to inspire the people to keep working in the same way they were doing it,
without fear to future depression.
China will change its proactive fiscal policy to a "judicious" one when the time comes, so they can
save money and regulate the investment in public good & the country will improve by then.

From the beginning of 2016, the Chinese government began to work on their policy to increase GDP
growth through greater infrastructure spending. People’s Bank of China (PBoC) had started shifting
away from their usual monetary policy tools of prime interest rates and banks’ reserve requirement
ratios. Now the Chinese government has taken a different stance on their economic policy making, as
seen in the scope of the credit-based stimulus, which had amounted to 40% of GDP. Since the end of
2015, China has tried to refrain from cutting rates to spur economic activity.
The repeated cycle of interest rate cuts in the lending rates began in 2015 , they wanted to boost their
real estate and the prices of newly built houses and apartments in the cities climbed by 20% year on
year when the average price remained stable (+0.2%).

The Chinese government are now focused on targeted measures that take regional differences into
account. Real estate markets in some regions have been over heating, leading to targeted restrictions
than tightening access to credit by raising prime rates. Their move to expand regulation of the
shadow-banking system is also due to the same factors. Recent history shows that accommodative
interest-rate policy inflates the mass of credit in the economy through these informal and relatively
unregulated channels. Here too, targeted measures like stricter oversight of wealth management
products – products that offer high returns, that are often designed to finance sectors hobbled by
limited credit, and that have an estimated value of CNY 23.5 trillion – are aimed at gaining more
control over shadow-banking activities and, more broadly, the country’s debt.

Rather than influencing economic activity through a policy of hard-to-manage rate cuts, Beijing is
now focusing on stimulating economic activity through credit while at the same time controlling the
level of liquidity in the financial system through a number of specific instruments which is expected
to remain in place for the coming months. credit will be injected on multiple occasions in order to
meet its full-year growth target of +6.5%, while implementing measures to control liquidity in the
economy. The large number of tools at the government’s disposal makes it difficult to clearly identify
the impact of its measures. That said, the property-market and shadow-banking examples discussed
above suggest a relatively unaccommodating or even restrictive attitude. This trend is apparent in
credit growth, which contracted from +12.5% in March to +10.9% in July.
MULTIPLIERS:

The estimated multipliers with respect to GDP, consumption, and investment. The output multiplier
is between 2.7 and 5.6, consumption multiplier is between 0.5 and 3.4, and investment multiplier is
between 1.2 and 3.6. A one dollar increase (decrease) in real government spending can raise (lower)
real GDP immediately by about 3 dollars, real investment by 1.2 dollars on impact, real consumption
by 0.5 dollars. In the intermediate run and long run, the multipliers are even larger, as shown in the
middle and lower panels in Table 2.