Since 2012, the overall feature of China's economic cycle has been "easy to cool and hard to heat up", and the main task of aggregate demand management is to increase demand.1/7
Regarding the choice of policy tools, standard monetary and fiscal policy instruments such as rate cuts and raising government debt to expand expenditures have not fully played their role.2/7
Meanwhile, investment through borrowing that is participated and led by local governments, backed by government credit to varying degrees but not reflected on the government budget, and also widely participated by commercial financial institutions, has prevailed. 3/7
This approach to increasing total demand is costly.The way out of this dilemma is to give full play to the standardized monetary and fiscal policy tools. 4/7
When the demand is insufficient, lowering interest rates should be the first tool to use. If this is not enough, then it is essential to expand expenditure budget. 5/7
These efforts will stem the debt expansion of local financing platforms, and help to fully implement macro-prudential regulatory measures. Strict credit risk assessment and credit lending principles are important for reducing credit risks and improving resource allocation. 6/7
Cutting interest rates is the preferred way to boost aggregate demand. Rate cuts can pare down debt costs for businesses and households while increasing the value of the assets they hold, thereby improving their balance sheets and stimulating spending.7/7
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