As the world grapples with economic chaos and uncertainty owing to trade and technology disputes kicked off by the US, the International Monetary Fund has recently shared an upbeat view on the Chinese economy. It has predicted 4.8% growth this year compared with a previous forecast for 4%. Amidst the overall gloomy global growth situation, China seems to be dodging the cyclical headwinds well. But it is clear that without significant government intervention, maintaining a steady upward trajectory would be difficult. In this context, understanding China’s political economy becomes more urgent than ever.

While the Chinese government, since the Covid crisis, refrained from announcing an aggravated stimulus package, its calculations began to change from mid-2024. In late September last year, the Chinese central bank announced a raft of monetary measures, which included rate cuts and property market support to stabilise growth amidst challenges at home and pressures abroad.

These pro-growth pronouncements became the key highlights of this year’s Two Sessions, in which Premier Li Qiang unveiled plans to issue a total of 1.3 trillion yuan in ultra-long special treasury bonds to make room for more growth-boosting measures. While these policies suggest a shift in China’s macroeconomic approach aimed at short-term returns, the large-scale stimulus, contrary to what many Keynesians claim, is not without its........

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