China International Capital Corporation's macro-economy analyst Xing Zhiqiang also echoes that view: "We strongly support and encourage the expansion of fiscal applications, and moving away from over dependency on monetary policy, which is ineffective in curbing an overheated economy and trade surplus-related problems."

Historical Rivalry between Monetary and Fiscal
For the past decades in China, the emphasis on monetary or fiscal policy has swapped priority several times. Between 1993 and 1998, the government had applied the two policies simultaneously for a soft landing in view of a prolong overheating economy.

In 1998, in the fallout of the Asian financial crisis, the Chinese government had first put forward monetary policy. Then, the interest rate was cut three times to an all time low of 1.98%, but consumption and retail prices remained in negative growth.

The failure to boost growth had later led the Chinese government to turn to fiscal policy as a remedy, recalls Researcher Ma Caichen from Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences. Ma explains: "Back in those days, the two policies were introduced in sequence, one after another."

Between late 1990s and early 2000s, China issued state bonds totaling to 600 billion yuan, and at the same time, government spending was enlarged so much that its budget was in the red. By 2002, the government deficit had increased to 3% and inflation was pressing, the backlashes triggered calls to abandon fiscal policy from economists. 

Subsequently, monetary policy emerged as the mainstream in macro-economy control tool, as fiscal approach faded into the background under mounted pressure from inflation.

In 2004, a planned tax reform involving the introduction of a value-added tax and rate cut was shelved, as the government feared the already inflated investment market would worsen under such fiscal pressure.

While the government has hesitated in introducing fiscal policy, it has wielded the monetary tool at length. Between 2004 and October this year, the Central Bank has increased interest rates nine times (five in this year alone) and also expanded the reserve ratio nine times during the same period.

However, such measures have yet to resolve or slow the trend of excess liquidity, to temper the huge trade surplus, or to damper climbing asset prices. Based on economic data in October, the consumer price index has reached an all time high of 6.5%, and there is no sign of a narrowing trade surplus.