Introduction
The Chinese economy has experienced impressive growth in the past few years, making the nation the world’s second-largest economy. After beginning economic reforms in 1978, the country was ranked number nine based on the nominal gross domestic product with over $213 billion and is currently ranked the second with a nominal gross product of approximately $9.2 trillion (The World Bank, 2021). China has, over time, overpowered the financial crisis in good shape and seen its gross domestic product grow with low inflation and a good fiscal position. This paper analyzes the article “China may be moving towards easy monetary policy” and relates it to economic concepts learned (Cheng, 2021).
Analysis
Monetary policy is the strategy adopted by the central bank of a particular nation to control the supply of money in the economy to help the economy grow or contract the economy that is growing too fast. Easing monetary policy is an action taken by the central bank to stimulate economic growth through lowering interest rates, reserve requirements for banks, and buying U.S treasuries hence allowing people to borrow more, including all types of borrowing such as personal loans and credit cards, and mortgages (Kenton, 2021). Borrowing more increases the money supply leading to significant growth in the economy. According to China’s third-quarter gross domestic product data, the economy has slowed drastically, and therefore, to allow the economy to grow, the country needs to ease the monetary, fiscal, and regulatory policies. As the country targets the gross domestic product to grow by 6%, it cannot tighten the monetary policy but needs to ease it using appropriate measures (Cheng, 2021). When the fiscal and the monetary policy are used in the appropriate direction by the central bank, it can stimulate the economy of China. The fiscal policy involves using government spending and taxing to influence the growth of the economy, which can be direct or indirect. For China to ensure economic growth, the government should use its authority to escalate the average demand through enhancing expenditure and generating an easy money setting. Fiscal policy can lead to a long-term impact on GDP growth via macroeconomic and microeconomic networks (Kim et al., 2021). Sound and responsible fiscal policy at the macroeconomic level can influence demand and smoothen the economic progression, enhancing commerce assurance, venture, and long-term development. Appropriate fiscal policy can influence the private sector habit by stimulating engagement, investment, and efficiency at the microeconomic level. For instance, for China to boost its GDP, which is a measure of economic growth, the government can introduce property taxes and set detailed value-added taxes to boost fiscal revenues while reducing the fiscal deficit (Kim et al., 2021).
Conclusion
China has been experiencing increased nominal gross domestic growth after conducting economic reforms in 1978. This has made China ranked among the countries experiencing impressive economic growth in the world. However, due to the breakdown of the Covid 19 pandemic, the country has been facing a decline in economic growth, forcing it to adopt policies that would contribute to its growth. This involves easing the monetary policy to allow money supply in the economy and adopting sound and responsible fiscal policy.
References
Cheng, E. (2021, October 22). China may be moving toward an easy monetary policy, but it will have to tread delicately. CNBC. https://www.cnbc.com/2021/10/22/china-may-move-toward-easy-monetary-policy-but-must-tread-carefully.html
Kenton, W. (2021, November 11). Tight Monetary Policy Definition. Investopedia. https://www.investopedia.com/terms/t/tightmonetarypolicy.asp
Kim, J., Wang, M., Park, D., & Petalcorin, C. C. (2021). Fiscal policy and economic growth: some evidence from China. Review of World Economics, 157(3), 555-582.
The World Bank. (2021, October 12). The World Bank In China. World Bank. https://www.worldbank.org/en/country/china/overview#1
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