China wisely follows Keynes in crisis

October 27, 2008 12:05 a.m.

The Chinese government and a number of their leading economists have also embraced Keynes and his method in responding to the global financial crisis. They have wisely planned for an increase in public spending and investment in inrastructure over the coming year as well as keeping interest rates low to encourage both investment and consumption. They have not devalued the renminbi but have committed themselves to co-operating with other major Asian and western countries in fighting a global slowdown. They have also maintained a system of regulation, far from perfect but well intentioned   over their own financial institutions and their stock markets despite having been under considerable pressure in the past to further deregulate. This was a smart decision on their part although some reforms will be necessary. The central bank has announced that it will be implementing measures to ensure adequate risk management practices are followed in foreign currency transactions because of some blunders on currency futures by certain   bankers.The stance of China should bode well for the future of the economy enabling it to play its important part in restoring global stability. They cannot totally escape the impact of a recession in western economies and they may well have to increase the size of their stimulus but their policy stance should help mitigate the negative impact of the global downturn.