In order to showcase the difference from the four trillion "strong stimulus" during the financial crisis in 2008, people called Premier Li Keqiang's economic policy a "micro stimulus". Some research has shown that this "micro stimulus" economic policy can not only increase China's GDP by 1 point, but also can really promote the transformation of China's economic growth mode, change China's decade-long "real-estate-based" growth mode and lead China's economy to a real road of efficiency and quality.

But the introduction of the new housing credit policy seems to have reverted the current "micro stimulus" policy back to the 2008 strategy of a "strong stimulus" of macroeconomic regulation. On the surface, the new policy emphasizes continuous support of "reasonable family housing consumption." But this "housing consumption" is intended for widespread demand instead of real residential housing consumption.

Literally, home purchases encouraged by the new policy falls into the concept of "housing consumption". But in reality, it encourages housing speculation. Especially when the domestic housing market price remains at a high level and most home buyers are unable to enter the housing market, only the speculative investors enter the housing market while the real home buyers are basically ruled out. The new policy is actually targeted at creating a prosperous real estate market and stimulating economic growth, because it encourages speculative investors to flood into the market by taking advantage of the preferential policy. In this case, the new policy may become much stronger than the "strong stimulus" of 2008.

The core of the "strong stimulus" of 2008 was not the fiscal policy of RMB￥4 trillion but the excessive easing bank credit policy. The credit policy boosted investor demand and speculation in the real estate market. For example, from 2009 to 2013, China increased the bank credit by RMB￥45 trillion (much higher than the total bank credit in the past 64 years) to push faster growth of the domestic real estate market and fast GDP growth. Generally speaking, the money supply by the bank credit is much larger than the basic money supply by the central bank (for example, the ratio between them in Hongkong is 9:1). If the new policy encourages speculative investors to enter the market through excessive preferences, this bank credit will have a stronger incentive than that of 2008, because this generalized housing consumption covers more areas, produces more preferential credit and encourages banks to supply more credit. Of course, although the implementation of the new policy deviates from its purpose, the above analysis indicates that the new policy implies a substantial change in the idea behind the domestic macroeconomic policy.

Yi Xianrong is a researcher at the Financial Institute of the Chinese Academy of Social Sciences.

This article was first published at chinausfocus.com To see the original version please visit http://www.chinausfocus.com/finance-economy/guard-against-regressions-in-chinas-macroeconomic-policy/