China’s central bank governor, Pan Gongsheng, has assured the public of the continuation of supportive monetary policies to boost the economy. At the same time, he has made it clear that China will avoid Western-style quantitative easing.
During the 15th Lujiazui Forum in Shanghai, Pan made a disclosure. The People’s Bank of China (PBOC) is currently in discussions with the finance ministry about purchasing Treasury bonds in secondary markets. Pan emphasised that this process would be gradual. He emphasised that the inclusion of bond trading in the policy toolkit should not be equated with quantitative easing. Instead, it should be viewed as a tool for managing liquidity.
The latest economic indicators paint a mixed picture of China’s economy. Property investments have declined further by 10.1% year over year in the first five months of 2024. Industrial output and export growth are also facing challenges due to proposed tariffs by the United States and the European Union on Chinese goods like electric vehicles.
In recent times, the PBOC has been using accommodative policies. They have employed tools such as relending, open market operations, and reductions in the reserve requirement ratio. Using this tool
Beijing has signalled the need for the central bank to broaden its policy toolkit. President Xi Jinping instructed the resumption of Treasury bond trading after a hiatus of two decades.
Li Xuenan, a finance professor at the Cheung Kong Graduate School of Business in Beijing, highlighted that China remains confident in the effectiveness of accommodative policies. She also believes that these policies will yield gradual results.
China believes that significant changes or easing are unnecessary in current circumstances. It emphasises the importance of maintaining policy stability to avoid the drastic fluctuations experienced after the 4 trillion yuan stimulus package in 2008.
