Abstract

Abstract:

Few studies have focused on the evaluation of China's "four trillion yuan economic package" promulgated in 2008, especially its negative effects. This article seeks to verify a hypothesis that the financial crisis in Wenzhou between 2011 and 2014 was an unanticipated consequence of the "four trillion yuan economic package". By using the Austrian business cycle theory, the authors attempt to identify the causal mechanisms of the Wenzhou financial crisis. They obtained the following findings: First, the tremendous credit expansion accompanying the "four trillion yuan economic package" distorted interest rate signals and the production structure, eventually leading to the financial crisis in Wenzhou. Second, the industrial policy accompanying the "four trillion yuan economic package" and relations-based governance in Wenzhou strengthened the above causal effect at the national and regional levels. This article unravels the black box of the Wenzhou financial crisis and sheds light on the policy evaluation literature on massive government intervention in China.

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Additional Information

ISSN
0219-8614
Print ISSN
0219-7472
Pages
pp. 152-173
Launched on MUSE
2018-03-15
Open Access
No
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