China looks to fiscal policy to support growth

Beijing has indicated it will use fiscal policy to encourage growth in the Chinese economy, following the recent turmoil in global markets.

As AFP reports, the world’s most populous nation will increase major construction projects, encourage private investment in key areas and broaden tax cuts.

The finance ministry also revealed that Beijing had already spent 96 per cent of its annual infrastructure investment budget by the end of August.

The news comes as the global financial situation has sparked fears of a global recession. Citigroup Chief Economist Willem Buiter told CNBC on Wednesday that “a classic recession scenario” is being played out.

Buiter pointed out that the Chinese economy has excess capacity, excessive leverage in the corporate sector and two booms, bubbles and busts in housing and stock markets.

"If China does worse, the U.S. and everybody else does worse. It is mitigated somewhat by weaker commodity prices," he said. "Chinese trade as a share for total world trade is larger than that of the U.S."

Last week it was revealed that China’s manufacturing sector contracted in August. The nation’s official purchasing managers index (PMI) of 49.7 was the worst result for the key index in three years.

The result in the Markit/Caixin poll of private sector factories was even weaker. It came in at 47.3, its worst result in nearly six-and-a-half years.


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