Fiscal Stimulus Fails in China (again)

Click here to read the original Cautious Optimism Facebook post with comments

In his recent January 9th column the Cautious Optimism Correspondent for Economic Affairs wrote, regarding the poor track record of "deficit stimulus" packages like those China is using to jump-start its sagging economy:

"This is why so often after a stimulus package, we read headlines that GDP got a bump, only to slump right back a quarter or two later… sometimes into a 'double dip' recession."

Eighteen days later from today's Bloomberg:

"China’s economic activity unexpectedly faltered to start the year, breaking the momentum of a recovery sparked by stimulus measures and underlining the need for Beijing to do more to prevent another slowdown."

Read "China’s Economy Stumbles in Sign Rebound Hinges on More Stimulus" at...

https://www.bloomberg.com/news/articles/2025-01-27/china-s-factory-activity-cools-ahead-of-major-new-year-holiday

The Economics Correspondent would like to think he's right so far about China but he could just be lucky, and he's definitely been lucky on the close timing of their bad news—that, despite yet another CCP stimulus package, the economy only got a one quarter sugar-rush bump and has already sunk back into malaise.

And adding a bit more detail from his January 9 column:

"This also explains why stimulus isn’t going to solve China’s problems. The central bank and government central planning mistakes that plowed so much debt and so many resources into ghost cities and giant construction projects have to be corrected, not propped up. Production lines that were wrongly diverted to those sectors must be allowed to reallocate to other industries that consumers both prefer and are able to support without a bubble."

"That will take some time and there will be some pain, but the adjustment is necessary."

If you missed the recent column explaining in more detail why government "stimulus" virtually always fails to end recessions quickly and instead prolongs them the Economics Correspondent recommends reading it at...

https://www.cautiouseconomics.com/2025/01/keynesianism-11.html

...so the next time recession hits the USA and the New York Times and WaPo's readers righteously thunder "We need more government stimulus. The last one wasn't big enough and those Neanderthal Republicans in Congress are holding up recovery," you'll have the ammunition to explain to them why stimulus doesn't work, why it fails over and over, and why it needlessly burdens future generations with trillions in debt all for nothing.