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China’s economic recovery is balance sheet constrained

The era of fiscal trade-offs in China has begun

THE Chinese economy is beset by Covid-19 lockdowns, a housing sector correction, depressed consumer demand and weak business confidence. China's growth targets for the year, already low by historical standards, are unlikely to be achieved. Given the scale of the economic challenges facing China, the policy response has been unexpectedly subdued.

The approach of Chinese policy-makers to the mounting economic problems has been incremental and reactive. The government has announced a series of modest policy measures to stabilise the economy, including business tax rebates, infrastructure investment, support for lending to small businesses and targeted consumption incentives. The primary focus of...

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