China and the United States

Role of Macroeconomic Policy in China's High Economic Growth amidst the Global Financial Crisis, The

Finally, China is still in the low development stage, and its per capita GDP is only U.S.$ 3,300. China is not completely industrialized, an environment that usually brings high economic growth. Many new industrialized economies (NIEs) experienced a similar high growth phase in the past. However, China is such a big country with a huge population, which prolongs its industrialization period. Although some of its costal urban areas are nearing industriaUzation, most of China's central and western regions are still graduaUy catching up with industriaUzation and urbanization. There is a big room for improvement in infrastructure development, and the Chinese government could use fiscal expenditure to increase investments to maintain its growth rate. Fixed asset investment in the central and western provinces has sped up, while east coastal provinces reflect a slowdown since 2003 (Figure 7).

In 2009, when the central government launched a fiscal stimulus, the western region was accorded the most investment projects, as the infrastructure in the west was comparatively poor. Thus, ladder-like development and the gap between regions enabled China to maintain high growth for a longer period of time.

III. The Cost of Large-Scale Fiscal and Monetary Stimulation

In most developed countries, the biggest cost of large-scale stimulation Ues in the growing budget deficit and government debt. The huge fiscal spending of the U.S. has already led to a sizeable federal government budget deficit, which rose to a GDP ratio of 9.9 percent in 2009 from 3.2 percent in 2008. It is expected that the ratio wfll remain at a high level of 10.6 percent in 20 10.2 The U.S. federal government's debts rose to $12.1 trilUon and will rise to $14 trilUon in 2010. This will cause increasing distrust from the international community on whether the U.S. is capable of maintaining the stabflity of the...