ExplainerWhat is China’s cross-cyclical economic policy strategy and how does it differ from countercyclical?

A cross-cyclical approach means taking action sooner, in smaller steps and with a longer time frame in mind, government advisers

It is a departure from countercyclical policy, which is when central banks and governments add stimulus to spur a slowing economy

3-MIN READ3-MIN

Officials have not outlined what cross-cyclical policy entails, but several economists with links to the government say the objective is to take action that is pre-emptive and moderate to smooth out fluctuations in growth. Photo: Reuters

Published: 11:09am, 23 Aug 2021Updated: 11:57am, 23 Aug 2021

The Chinese Communist Party has a new catchphrase to guide its economic policy, a so-called cross-cyclical approach that government advisers say means taking action sooner, in smaller steps and with a longer time frame in mind.

It is a departure from countercyclical policy, which is when central banks and governments add stimulus to spur a slowing economy – like cutting interest rates or taxes and boosting infrastructure investment – and tighten when growth starts accelerating.

Officials have not outlined what cross-cyclical policy entails, but several economists with links to the government say the objective is to take action that is pre-emptive and moderate to smooth out fluctuations in growth.

It implies keeping restrictions in place in some areas, while easing up in others. That was highlighted recently by the central bank cutting the reserve requirement ratio (RRR) for banks to boost liquidity, but tightening property restrictions to rein in prices.

But what can be expected from the policy shift?

Longer time horizon

A cross-cyclical approach suggests authorities are considering economic performance over a longer time period when deliberating policy tools, according to Zhang Xiaojing, deputy director of the National Institution for Finance & Development, a state think tank under the Chinese Academy of Social Sciences.

“Policymakers will look past volatility at present, and aim to make sure the economy stays on track over the next two to three years,” said Zhang.