China: the Keynesian state?

Keynes' advocacy of fiscal stimulus to revive an economy from recession is well documented. For obvious reasons it has also been fiercely debated over the past two years, so it is somewhat ironic communist China could stake a claim to being the most Keynesian state in the global economy.

The Chinese Government’s fiscal stimulus of its economy caused both GDP, and the money supply, to boom throughout 2009. By Q3, domestic demand was rising by 7.3%, something that any western government would be delighted with for a year, never mind in just a quarter. The effects have been dramatic, Chinese stockpiling of commodities has pushed up prices, while the stimulus to international monetary growth has boosted the values of risk assets, such as equities. Domestically, the Chinese output gap has probably disappeared and been replaced by a surplus (ie domestic demand is now almost ce...