A former senior official of the International Monetary Fund (IMF) has advised China to "carefully manage the U.S.'s boom-bust cycle, maintain stability and rebuild a smooth path for domestic economy" in order to cope with the aftermath of U.S. President Joe Biden's $1.9-trillion stimulus package.
Aimed at giving a boost to the U.S. economy reeling from the affects of the coronavirus pandemic, the package could lead to inflation and affect global markets, including the Chinese economy, which is "very closely linked to the U.S. economy," Zhu Min, former deputy managing director of the IMF, told CGTN on the sidelines of Boao Forum for Asia 2021 on Tuesday.
"We need international cooperation, particularly on the central bank side, and make sure we understand each other," he stressed, adding that a proper policy instrument to deal with unexpected conditions was also important.
Zhu said the good news is that the Chinese economy still has ample policy space because its interest rate is still high. "It is one of the few economies that have positive strong interest rates," he said.
"But we do need to very carefully observe and prepare ourselves for these possible things if happens," he added.
The American Rescue Plan includes stimulus checks and increased financial support for those that are eligible with children and the unemployed. But the bill has faced strong opposition from the Republicans, who said it does not do enough to help families.
Qu Qiang, assistant director and fellow of the International Monetary Institute at Renmin University, expressed his concern on possible huge debt taken by the federal government with this bill.
In his view, to finance its relief package, the U.S. government will basically issue an IOU to the market and the rest of the world to borrow money and then pay this back with income from taxes and other sources over the next several years. "So that's going to be a very very huge debt."
While IMF Chief Economist Gita Gopinath estimated in her blog post in February that with the full amount of stimulus, inflation "would reach around 2.25 percent in 2022, which is nothing to be concerned about."
The IMF expected the U.S. economy to grow by 6.4 percent in 2021, according to the latest World Economic Outlook (WEO), up from the 5.1 percent projection in January.
The U.S. economy contracted by 3.5 percent in 2020 as the pandemic depressed consumer spending and business investment, the largest annual decline of U.S. gross domestic product since 1946.