China should take unconventional action to prevent a worst-case scenario in which the economy could “fall off a cliff”, as there are signs of a fundamental shift in Beijing’s understanding of debt and deficits as well as in policymakers’ mindset on macroeconomic risks and stimulus packages, according to a prominent economist with close ties to the finance ministry.
High-profile press conferences were held successively last week by China’s top economic planner and finance ministry, but both refrained from putting an estimated value on the scale of stimulus being employed.
Asked what his estimate was for the combined value of the sweeping suite of stimulus measures – including debt relief for local-level governments, special treasury bonds and targeted actions to address the national property crisis – Liu said it “should absolutely surpass” 10 trillion yuan (US$1.4 trillion), but that it could be years before the total is fully realised.
“If you don’t take extraordinary measures [to boost domestic demand], the economy may fall off a cliff,” Liu warned in an exclusive interview with the Post on Wednesday. “It is not always a simple linear trajectory.”
Any final decision on the stimulus total, since it involves changes to budgetary plans, would require approval by China’s top legislature. And if the stimulus figure does come to light, it would only be released by the central government.