Summary: In this episode of China Money Podcast, our host Nina Xiang reads the tea leaves of an important signal from Beijing that China is determined to deliver its economic growth objective this year, whatever it takes. According to Chinese state media, the Chinese government is stepping on the pedal of fiscal stimulus. Organizations and local authorities were notified to report infrastructure and other investment projects earlier than scheduled. Beijing looks ready to accelerate approval process and appropriate funding for them as soon as possible. After disappointing statistics in April, China’s central bank has cut reserve requirement ratios, but there are a few challenges relating to monetary loosening alone. Number one, businesses are unwilling to take bank loans as the economy is cooling. Number two, opening the monetary faucet could make the government’s target on inflation more difficult to achieve. The Chinese government has the ability to use fiscal stimulus and it is a more appealing method as it does not tend to induce a credit bubble or drive up inflationary pressure. Public debt to GDP in 2011 in China was 43 percent, compared with 103 percent in the U.S., 82 percent in Germany and 120 percent in Italy. (Should we mention Greece, 165 percent?) The effort is already underway as first quarter fiscal expenditure growth reached 33.6 percent, highest for the past two years. In addition, Beijing is speeding up the spending machine so that the economy does not continue to cool down further. That means we might see some stimulus effect in the real economy as soon as the third quarter.
