Faculty & Research


Despite recent resumption of social activities after a three-month lockdown, China’s economic recovery remains uneven and the monetary tools and fiscal policy introduced so far are “weak and fragmented” in the face of a complex downward trend,scholars from Peking University’s Guanghua School of Management warn, calling for more aggressive moves to re-energize the country’s economy.

Major plans proposed include:

— 4.88-trillion-yuan stimulus package with strengthened state-level coordination and supervision

— 900-billion-yuan spending coupons for nationwide release,including cash for low-income groups and people in outbreak epicenter Wuhan

— special funds to support smaller and export-oriented businesses

— increased new infrastructure investment, accelerated REITs trial program

— greater financing support through moderately raising deficit ratio, issuing special bonds, increas local government debt quota


China’s central bank has so far injected 2.2217 trillion yuan worth of liquidity. With additional loans planned in upcoming months, the total will amount to 3.0217 trillion yuan. As China's money multiplier — the ratio of broad money as defined by M2 to base money that the central bank creates — is around 5, the current plan has generated support worth more than 15 trillion yuan.

Meanwhile, more relief policies have been carried out at central and local levels. These include 145.2 billion yuan spent on outbreak control, social security fees worth 500 billion yuan exempted, 80 billion yuan cut in tax and 156 billion yuan to support people in need. With additional support in utilities, rental, salaries and other fields, these relief efforts are worth more than one trillion yuan. However, due to these policies’ fragmented nature, lack of precision, inadequate implementation and slack monetary policy transmission, their real effects are far from enough for the real economy, especially for hardest-hit smaller and export-oriented businesses.

Based on research of covid-19’s impact on China’s economy and post-outbreak recovery, Guanghua’s Macroeconomic Policy Research Team calls for strengthened policy coordination at the state level, greater emphasis and focus in policy support as well as a special budget system and account to monitor the use of stimulus fund so as to boost transparency and public trust.


According to the team, encouraging people to spend money will have a more efficient and direct impact than investment on supporting small- and micro-sized and private businesses and increasing job openings. Coupon-induced spending increase will boost manufacturing, which, in turn, creates demand for jobs, and jobs mean greater spending capacities.

Citing a study conducted with Ant Financial on coupons worth 250 million yuan released in Hangzhou in late March and early April, the team found that one yuan from government subsidy generated more than 3.5 yuan in actual spending, and coupons with large values had even larger stimulus effect. Such stimulus effect was observed across industries and population groups and did not result in future spending contractions.

Meanwhile, another study in southwest China’s Guangxi found that coupons have similar impact in less developed regions, and the multiplier effect might be even higher.“Flexible and practical coupons have greater behavioral nudge effect on people at the cost of less fiscal spending,” the team says in a report, recommending a two-tier spending stimulus plan worth 900 billion yuan that includes cash subsidies for low-income people and those in regions hit hard by covid-19 as well as coupons for nationwide release.

Specifically, low-income people and residents in Hubei, the epicenter of China’s outbreak, will get 1,000-yuan coupons. According to calculations by the team, China’s population with low-income jobs (except Hubei)is roughly 223 million. With the 32.74 million residents with jobs in Hubei, the total amount of cash subsidies will be 262.7 billion yuan. These people basically spend all they earn on daily necessities, so this money aims to help relieve poverty and improve livelihoods.

Guanghua scholars call for the country’s civil affairs and finance departments to cooperate with telecom companies and third party payment brands to locate these beneficiaries in order to release these cash subsidies as accurately as possible. In addition, governments might have to spend between 120 to 140 billion yuan on eliminating the country’s digital divide (including buying mobile phones and data plans for these people).

The 500-billion-yuan coupons for nationwide release can be subjected to local governments’ detailed plans depending on local economic progress and other features, but the prospect should be inspiring as Hangzhou’s coupon campaign generated retail sales worth 1.75 trillion yuan, a 4.25 percent increase in retail total.


The team calls for the set-up of a special fund worth 1.5 trillion yuan to provide credit loans for medium-, small- and micro-sized firms. Following the covid-19 pandemic, major economies including the U.S., Germany, France and Japan all presented recovery plans that included support for smaller businesses. In China, these companies absorbed more than 80 percent of urban employees, and their survival is of crucial importance for employment and people’s livelihoods. In many cases, only 500,000 yuan will be enough for such a company to weather through the global lockdown and resume normal operation.

According to Guanghua scholars, this 1.5 trillion yuan, provided by the central bank, will be granted by commercial banks to firms in the form of loans, and the central bank will shoulder 70 percent of the risk, commercial banks 30 percent. While loans smaller than 500,000 yuan could be interest-free,bigger loans will adopt standard interest rates. Use of these funds should be strictly monitored.


Support worth 500-billion-yuan should be in place to support export-oriented firms and help safeguard their industrial chains. It is estimated that added values generated by the country’s export department amounted to nearly 10 percent of GDP in 2019, taking up nearly 30 percent of the manufacturing total. Based on the International Monetary Fund’s forecast that the global economy will contract by 3 percent in 2020, the team expects China’s exports will drag down the country’s economic growth by more than 1 percentage point.

The export department usually takes the lead in technological advance and organizational changes. However,its growth lagged behind GDP growth in recent years and suffers the dual pressure of research and development and costs. With exterior demand weakened and global supply chains disrupted by the pandemic,China’s exports stand to suffer bigger losses and its impact on the country’s economic growth will be even greater. The potential losses of a huge number of jobs in this labor-intensive industry add to the risks.

“Fiscal policy should prioritize support for the country’s export to safeguard its main market,” the team says, calling for special budget and supervisory commissions to see to that short- and medium-term loans are properly granted by commercial banks and used by export-heavy firms for survival. Choice of beneficiaries should emphasis key regions and key industries and take into account companies’ places in the industrial chains and their pre-covid-19 performances and tax records.


According to the team, monetary tools should assist fiscal policy by providing ample liquidity and moderately cutting benchmark deposit interest rates so as to guide loan interests rates to come down and reduce firms’ financing costs. Structural monetary tools and strengthened supervision over the use of loans should be in place to ensure that the liquidity are put to good use.

The central bank is also advised to further lower rates for the one-year medium-term lending facility (MLF) and OMO to guide loan interest rates to decrease so as to reduce financing costs and keep carrying out structural monetary tools to compliment fiscal policy in supporting smaller and export-heavy firms via loans and subsidies. Meanwhile, the central bank should join force with the China Banking and Insurance Regulatory Commission to monitor fund use and see to that money is not sitting idle or flowing excessively to the real estate market. More liquidity could be provided to non-commercial banks via Pledged Supplementary Lending (PSL) and other means to boost their capacities to grant low-interest, long-term loans.


The team recommends increasing investment in new infrastructure such as 5G networks and data centers to a total volume of 315.5 billion yuan throughout 2020. These infrastructure projects, as part of the country’s scientific decision-making to boost quality growth, will have great synergy with emerging industries, innovative business modes and new products and services.

According to forecast by the team based on latest official figures, China will spend 250 billion yuan building 500,000 5G base stations in 2020. Another 1.7 trillion yuan will go into the construction of 4.25 million stations between 2021 and 2025, boosting related market by nine trillion yuan. Investments in Artificial intelligence chips and servers will generate six trillion yuan in market value by 2025.

Guanghua scholars believe that such investment will accelerate the post-covid-19 recovery of demand and lift firms out of hardships, calling for better planning and policies to lay down key projects. Financial institutions should be encouraged to chip in new infrastructure investment via issuing bonds and loans, and special state-level funds should be allocated to support related projects. Developers could resort to REITs and other market-based methods to finance their projects in a sustainable way. Legislations should be accelerated concerning the publication, exchange and protection of data to create a fair and orderly data-using environment. Greater fund support should be in place for key state-owned enterprises’ R&D projects while privately-owned businesses could enjoy tax reduction and other favorable policies for their own innovation drives. New infrastructure projects could also enjoy favorable terms in energy consumption fees. Last but not least, related government departments could open green channels to reduce red tapes when approving the use of land and other resources.

China’s recently giving green light to a REITs pilot program is a key move that will revitalize the country’s vast amount of stock assets in infrastructure, reduce leverage ratio and attract funds from various public sources. The pilot program will first cover the infrastructure realm, a mature and smooth market for REITs that include wireless communication, ports, tolled motorways, urban utilities, warehouses and information networks. The team calls for favorable tax treatments for the transfer and operations of REIT assets to support their public welfare nature.


According to the team, investment in public healthcare could go up to one trillion yuan after the covid-19 outbreak exposed the country’s healthcare shortcomings. Figures show that China’s healthcare expenditure took up 6.4 percent of GDP in 2018 while the ratio for the U.S. was 17.2 percent and Japan 10.7 percent. This one trillion yuan will help boost the country’s public healthcare capacities as well as economic recovery.

Infrastructure projects that involve renovation of old residential communities, construction of affordable housing as well as urban centers are usually of a large scale and capable of attracting huge investments. Roughly 170,000 old residential communities covering some 4,000 million square meters await repairing across the country. Based on Guanghua’s research, renovating these communities will help generate 1.3 trillion yuan in investment.

Meanwhile, affordable housing and rentals offer flexible accommodation options for some 13 million new urbanites and 290 million migrant workers in cities. Investment in this field should amount to 400 billion yuan, jointly supported by the government and market entities. In addition to building from scratch, another method is to purchase assets owned by the government or state-owned enterprises and convert them into affordable housing. REITs could play a key role in financing these projects in a sustainable fashion. According to Guanghua, such investments will lead to an “extremely huge boost”to economic recovery.

Construction of central cities and city clusters will help improve infrastructure and services for urbanites, attracting more workers and residents to form high quality communities with full functions. Such concentration will lead to high efficiency and greater income growth and gradually close the gap between downtowns and neighboring areas.


The entire stimulus package advised will entail 4.88 trillion yuan, and Guanghua scholars recommend multiple ways to secure the fund.

Increase special bonds issued throughout 2020 to 3.5 trillion yuan, up 1.4 trillion from 2019.

Greater countercyclical adjustments are needed to cope with economic uncertainty during the current pandemic. To address the government’s decreased earnings and soaring expenditures, issuing special central government bonds is a low-cost and long-period method to close the fiscal gap. The team proposes the issuance of bonds worth two trillion yuan on the condition that such a move won’t trigger inflation or soaring housing prices. While commercial banks purchase these bonds and use the fund to support smaller and export-led businesses as well as people in need, money generated during this process could be kept under control through the adjustments of reserve requirement. Currently, liquidity is ample enough to support the issuance of government bonds thanks to monetary policy, so the team advises the central bank not to directly purchase these bonds.

According to the team, by raising the deficit ratio from 2.8 percent in 2019 to 3.6 percent, some 800 billion yuan will be available if the country’s GDP is estimated roughly at 100 trillion yuan.

Meanwhile, the country’s housing fund had about 800 billion yuan in balance by the end of 2018. Guanghua scholars call for reform plans to funnel the fund into the supply side. According to the team, many local governments (except those of major Chinese cities) have a large amount of fund sitting idle in their housing fund programs, which is far from ideal for their potential values or the long-term development of non-commercial housing financing.

Figures show that a total of 87.2 billion yuan in housing fund had been granted as loans to non-commercial housing construction projects by the end of 2018. For 2020, Guanghua scholars recommend 400 billion yuan set aside for investment in public healthcare, old community renovation and construction of affordable housing and rentals.

China’s accumulative infrastructure investment had hit 113.68 trillion yuan as of 2017. As the REITs pilot program is under way, just one percent securitized will translate to more than one trillion yuan in market size.

Last but not least, a moderate proportion of shares of China’s listed state-owned enterprises could be transferred. China has a total of 1,104 state-owned firms listed in the A-shares market, their combined market value amounting to 27.5 trillion yuan, or 40.6 percent of the A-shares total. Last year, the central government transferred 10 percent of shares in state-owned enterprises to the national social security fund in an effort to avoid a pension shortfall. If 10 percent of shares in state-owned enterprises are transferred to relieve the fiscal burden now, the ensuing dividend could translate to 60 billion yuan earned on the fiscal balance sheet.

(This article is based on research by the Guanghua Macroeconomic Policy Research Team. Team members include Liu Qiao, Xu Xianping, Zhou Li’an, Chen Yuyu, Zhang Zheng, Yan Se, Tang Yao, Zhang Lin, Gao Qianyun, Zhang Jiahui)

© 2019 Guanghua School of Management Peking University