China's Arsenal in the Face of Global Recession

Summary

COVID-19 is pushing the world economy toward a deep recession that could endure in the long-term. To support the economy, the Chinese authorities have approved various fiscal and monetary policy tools that are suited to the current circumstances.

Key points

• Key points:
• Nevertheless, lessons should be learned from the RMB 4 trillion stimulus package that was implemented during the 2008–2009 global financial crisis, which was the main factor behind the rapid rise in Chinese debt over subsequent years.
• The Chinese government should allow fiscal policy to play a leading role, and complement it with monetary easing.
• Meanwhile, the Chinese central bank should exercise caution with respect to interest-rate cuts and implement quantitative tools to ensure liquidity in the financial sector.

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