Policy Simulation

Abstract

Since the global financial crisis in 2008, the Chinese government has taken powerful anti-crisis measures. A “4 trillion Yuan stimulus package” was one of measures used to avoid the China’s economy from plunging. After the China’s economy picked up in the first quarter of 2010, the quarterly growth rate (cumulative year-on-year base) continued to decline as those anti-crisis measures faded out, more recently, as a result of high economic risks in the euro area and the U.S. (see Fig. 1.1). The growth rate of GDP in the second quarter of 2012 reached a new low level of 7.8 %. The perspective on the global economy is expected to be gloomy in short term. In the case where the euro area falls apart and turns into another deep recession, which would significantly undermine the U.S. economic recovery, how much would that affect the China’s economy, and would the China’s economy need a new stimulus package with massive investment expansion? Without answering these questions, the local governments have begun to call for and plan on some magnificent investment projects.