China Keeping the Dream Alive with Government Spending

Reported central government spending in China, which is likely only a fraction of the actual level of state directed spending in the economy, has recently shot up to a new all-time high just as the reported economic growth rate has plunged to a low not seen since the late ’90s. A coincidence this is not. Growth in the industrial economy in China slowed drastically in 2015, and China has resorted to its usual response of juicing government spending as an offset. In 2015 alone, central government spending rose from roughly 21.7% of GDP to closer to 25% of GDP, replaying the 2010-2011 episodes of ballooning government expenditure. By our math, the rise in government spending has so far added roughly 3% to 2015 reported GDP, and this is to say nothing of the vast amount of state directed spending not captured in this statistic.

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