How to Boost China’s Economy: Spend on Services and the Poor

Figure 2. Impact of a Fiscal Stimulus Equivalent to 1% of GDP
Spending on public services and the poor yields the biggest GDP bang for the buck (Source: Bloomberg)


Can fiscal stimulus boost China’s economic growth without dangerously exacerbating the country’s debt problems? Yes, according to a new Paulson Policy Memorandum, which argues that stimulus aimed at expanding social services and raising the spending power of low-income households is the best way to speed up China’s economy. In the view of Bloomberg economists Tom Orlik and Fielding Chen, spending on public services would have the largest impact on GDP growth and employment. Why spend on low-income households? Contrary to conventional wisdom, less affluent Chinese are more likely to spend their money than the rich.