Coronavirus stimulus: is the US or Chinese approach more dangerous?

China and the United States have taken very different fiscal and monetary stimulus approaches to tackling the coronavirus pandemic

US stimulus may lead to strong economic fluctuations in 2021-22, while China’s strategy may cause a lower growth rate in 2022 and beyond

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The US Federal Reserve’s holdings of Treasury securities have increased by $2.3 trillion in the year to March 2021. Photo: TNS

Zhang Lin

Zhang Lin is deputy director and chief macroeconomic researcher at the Far East Credit Rating research institute.

Published: 1:00am, 24 Mar 2021Updated: 1:27am, 24 Mar 2021

When the coronavirus pandemic began rippling through the global economy last year, China and the United States responded with very different fiscal and monetary strategies.

China’s top leaders rejected the Ministry of Finance’s idea of monetising the fiscal deficit and exercised restraint in stimulus policies. The growth rate of money supply stopped rising in April last year when the pandemic was largely under control in China, allowing government bond yields to increase.

Stimulus has been scaled back further in 2021, with regulators focusing on controlling asset bubbles in the real estate and stock markets.

The US approach has been a completely different story. The US Federal Reserve’s holdings of Treasury securities increased by $2.3 trillion in the year to March 2021, sending broad money supply soaring.

US Treasury Secretary Janet Yellen has said the size of government debt no longer matters and it is more important to focus on interest payments as a share of gross domestic product (GDP).

Soon after she made the comments, US President Joe Biden successfully introduced an additional US$1.9 trillion stimulus package late in February, even as stock markets continued rising and unemployment was falling.

So, in the long run, which policy approach will be viewed as better?