With growth on track, China starts to unwind stimulus

THE PHRASE “first in, first out” has become shorthand for China’s experience of the covid-19 pandemic: it is both where the virus started spreading and the first large country to control it. Its early failure and subsequent success will be studied by epidemiologists for years to come. But for economists and investors, it is another “first in, first out” that matters more at the moment. China was the first country to open its lending and spending taps in the face of the coronavirus downturn. Now, it is the first to start to close them, giving others a partial preview of what the end of stimulus will look like.

Parallels between countries are, of course, imperfect. China required less stimulus because its workers went back to factories and offices nearly a full year ago. But a few general conclusions can still be drawn about its return to more normal monetary and fiscal policies.

The most notable is its gradualism. On March 5th, after The Economist went to press, the government was set to announce its budget for 2021. It was widely expected to target a smaller fiscal deficit this year, probably about 3% of GDP, down from last year’s 3.6%. Factoring in other quasi-fiscal measures such as spending by government-linked companies, China’s true fiscal deficit will be about 12% of GDP, compared with a...