China Loosens Fiscal Policy In An Attempt To Meet Growth Rate Goals

The Chinese government is taking a radical new approach as it attempts to keep its projected growth rate on target. These new looser fiscal measures are an effort to help the government continue its five year plan track to help double individual income and lift millions of people out of poverty in the countryside.

There are several key elements of China’s new fiscal policy. The first major element of the new monetary policy involves the easing of bias in the financial economy. China’s has already slashed the percentage of currency that its federal reserve banks must stash away. This is an attempt by the government to encourage spending and investment which is supposed to grow the economy. China’s government has also adopted a more realistic growth rate goal. Instead of targeting and foreseeing high growth rates above 7% each year, the government now has set its goal to 6.5%, the minimum needed to reach its five year plan. The forecast for economic growth for this year and the future is also set at 6.5% to 7%.

Another key element of China’s new monetary policy is its attempt to eliminate what are known as zombie enterprises. These are state owned businesses that are ineffective and unprofitable and they actually result in a loss of money for the Chinese government. China plans to eliminate its zombie enterprises by merging them together and restructuring them. It is willing to spend up to $15 billion US dollars on the effort, with most of the sum going to employees that will be laid off as a result of the restructuring and merging of the zombie enterprises.

The money supply is another crucial element of China’s new fiscal policy. China’s debt is expected to rise to 3% of gross domestic product, up from 2.3% this year. Its money supply is also expected to rise by 13%, exceeding its goal of 12% set in 2015. Such figures have led Moody’s investment services to downgrade China’s credit rating from a stable rating to a negative one. Moody’s cites a growing debt, disappearing currency reserves and the question of whether the Chinese government can actually enact reforms and policy to turn the Chinese economy around.

The Chinese response to the downward pressure being felt in its economy is surprisingly coherent experts believe. It is trying to pump money into the economy by using up currency reserves, restructure state owned enterprises and at the same time raise its deficit, without having to further devalue the yuan. Despite this China’s situation remains precarious and will have to be carefully monitored.

Investment banking house Madison Street Capital is a an investment firm that has a close eye on the Chinese economy and the government’s policy there. It has Asian experts who provide key insight into developments in China and other Asian tiger nations such as Korea and Japan. The global perspective of Madison Street Capital has made it a leading investment banking house that provides numerous services to clients around the world. Some of the things that Madison Street Capital does is valuation, restructuring, advisory, bankruptcy, mergers and acquisition.

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