As the Chinese government's reserve ratio has reached new height while the Federal Reserves of the United States has lowered its interest rates, the interest gap between China and America is reducing, thus, leaving less room for maneuvering of monetary policy in China.

Ma Caichen explains that China only has two cards in its macro-economic hand– monetary and fiscal – and when the earlier failed, it is natural for higher expectations to be placed on the latter.

Ways to Play the Fiscal Card
Citic Securities analyst Chen Jiju believes that the government has started testing the water with fiscal tool this year, including the introduction of rebate for export tax and issuance of special state bonds.

One fiscal strategy that was deemed effective this year is raising the stamp duty from 1% to 3% on May 30th. After the policy was announced, stock exchange indexes in Shanghai and Shenzhen dropped drastically; 281 and 829 points respectively.

Institute of Finance and Trade Economics researcher Yang Zhiyong points out that numerous recent interest rate cuts and bank reserve hikes have failed to shake the stock market, but two weeks ago, an announcement of the Resources Tax adjustments had caused an overall drop in share prices for resources-related industry.

Another researcher from the institute, Ma Caichen adds that monetary policy is dependent on the market economy system to materialize its objectives, thus, its impact is indirect; whereas fiscal policy is a direct involvement of the government, so its impact is straightforward. 

A source from the China Banking Regulatory Commission agrees that fiscal strategies are needed to balance the many uncertainties emerging in the Chinese economy today, adding that one of the major tasks is to curb hot money and overheating investment. That said, the source also cautions government against spending on direct investment.

China Galaxy Securities chief economist Zuo Xiaolei believes that there will be changes in fiscal policy next year but the aim is not directed at stimulating economic growth. She thinks the expected fiscal policy via tax adjustments is a step towards fine-tuning the relationships between Central and local governments through a re-distribution of resources.