From the Research Division of the Federal Reserve Bank of St. Louis this Working Paper Withstanding Great Recession like China should be read by everyone interested in global macroeconomics (everyone?); not just China wonks.
In it Mr. Yi Wen Jing of the Federal Reserve Bank of St. Louis and Mr. Jing Wu of Tsinghua University explain why stimulus measures in the US and Europe merely stabilized economies but how in China stimulus resulted in a strong countercyclical growth spurt.
This is important because between 2007~2013 China’s industrial production nearly doubled. Over the same period America’s remained flat and in Europe and Japan it declined by 9.3% and 17.1% respectively. In 2007 China’s industrial production was 60% of America’s; by 2012 it was 126% ending over 100-years of American supremacy. It also addresses the issue of output gaps and in turn provides a clue as to why deflation remains such a potent threat to, by comparison with China, fragile Western recoveries.
In the author’s own words most of the difference in performance has been “..because China implemented bold, decisive fiscal stimulus programs that no other major nations dared to adopt. In particular, the Chinese government cleverly used its state-owned enterprises (SOEs) as a fiscal instrument to implement its aggressive stimulus programs in 2009, consistent with the very Keynesian notion of aggregate demand management through increased government spending and the fiscal multiplier principle.”
The math starts to get a bit out of control from P. 24 but the good points with some excellent charts are all before that but if you open the document you should read the conclusion which begins on P. 36. All up a very thought provoking read with implications for the conduct of policy, both within China and the rest of the world, for a long time to come.
Happy Sunday
[In reading this paper I began to wonder about the effect of Keynsian thought in China and came across this easy read from the Cambridge Judge Business School on just that subject http://www.jbs.cam.ac.uk/fileadmin/user_upload/research/workingpapers/wp1402.pdf. The authors note the irony of Keynes policies being successfully applied in China when they were intended to be an answer to underlying problems/contradictions of the Capitalist system.]