How to save China’s economy

EARLIER THISGDP year a Chinese publisher released a translation of “In Defence of Public Debt”, a book by Barry Eichengreen of the University of California, Berkeley, and several others. Reaching deep into history, the book seeks to restore balance to the debate on government borrowing by emphasising its neglected benefits. Mr Eichengreen argues that indebted countries can get into trouble when they turn to fiscal restraint too soon, neglect growth or succumb to deflation, which only makes debt harder to service. The arrival of the translated edition was timely. Many economists believe the Chinese government’s fiscal caution this year has contributed to disappointing growth and the danger of falling prices.Thankfully, China’s government has now begun to loosen the purse strings. It has taken the rare step of revising its budget-deficit target from 3% of to 3.8%. It has allowed provinces to issue “refinancing bonds”, which will help them repay some of the more expensive debt owed by affiliated infrastructure firms known as local-government financing vehicles. Financial regulators have urged banks to meet the “reasonable” financing needs of the less rickety property developers, without discriminating against private ones. Officials also talk more often about “three major projects”: affordable housing; leisure facilities that can also help China cope with disasters and emergencies; and efforts to renovate “urban villages”, or formerly rural enclaves.