Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

China shouldn’t risk West’s large monetary easing of last decade to combat economic slowdown, central bank warns

China shouldn’t risk West’s large monetary easing of last decade to combat economic slowdown, central bank warns

PBOC pressured to cut interest rates to stabilise economic growth; deputy director of research dept says country should use ‘institutional advantages’ instead. Comments come days ahead of the Central Economic Work Conference, at which top China officials will set the economic policy priorities for 2020

The economic problems created by the aggressive monetary policy easing undertaken by Western central banks in response to the global financial crisis a decade ago are a clear warning to China not to go down the same path to combat its current economic slowdown, according to an official from the central bank.

China, instead, should use the institutional advantages unique to China to address the country’s economic problems, Zhang Xuechun, deputy director of the People’s Bank of China’s research bureau, said on Friday.

The central bank is under continuous domestic pressure to cut its interest rates further and faster to help stabilise economic growth, which is expected to drop below 6 per cent in the fourth quarter this year and fall further next year.

Coming only days ahead of the Central Economic Work Conference, which will set the government’s economic policy priorities for 2020, the comments send the strong signal that the PBOC believes an expansion of fiscal policy and continued economic restructuring, rather than monetary loosening, should play the leading roles in combating the economic slowdown next year.



“We must learn the lesson from developed countries that relied heavily on quantitative easing,” said Zhang, citing asset bubbles, the widening of the wealth gap and rising international currency and trade competitions as the negative consequences of those policies.

“When we face downward [economic] pressures from shifting to high-quality growth and external uncertainties, monetary policy should not leap forward alone,” Zhang said.

“Instead, it needs coordination with fiscal policy and structural reforms. The purpose is to improve our productivity and solve the distribution of income.”

China should use its “institutional advantages” – such as its ability to plan and execute five-year or even longer-term structural reform plans without electoral pressure – to solve its current economic challenges, Zhang said.

Between 2008 to 2014, the US Federal Reserve cut interest rates aggressively and conducted four rounds of quantitative easing, buying US Treasury bonds and mortgage-backed securities directly from the market to inject large amounts of liquidity into the financial system.

The Bank of Japan also launched two rounds of quantitative monetary easing from 2013, involving significant bond purchases of 80 trillion yen annually (US$730 billion), and introduced negative interest rates in January 2016.



The European Central Bank implemented an asset purchase programme between 2015 and 2018, spending €2.6 trillion (US$2.9 trillion) on government bonds, corporate debt and asset-backed securities. In September 2019, it restarted quantitative easing measures and cut its bank deposit rate to an all-time low of minus 0.5 per cent.

The Bank of England implemented three rounds of quantitative easing from 2009, purchasing £435 billion (US$560 billion) of government bonds in total.

“We should cherish the monetary leeway we have, enhance coordination with fiscal policy and strongly push forward supply-side structural reform,” Zhang told the 2019 China Finance Annual Forum in Beijing.

The US Federal Reserve has cut benchmark interest rates three times this year, with US President Donald Trump calling for more aggressive moves to boost the US economy, even talking about negative interest rates.

“[Quantitative easing] and negative interest rates will have their limit, though we don’t know how far it can go yet. But think about it, if the [US Federal Reserve] cut its benchmark rate when its economy is at a 30-year high and its unemployment rate is at a 30-year low, how can it address a [future] economic recession?” Zhang added.

In contrast, the PBOC has eased its monetary policy only slightly, given concerns about putting downward pressure on the yuan exchange rate and adding to the recent rise in the country’s debt level to an all-time high.

China cut its three key interest rates – the medium-term lending faculty rate, the loan prime rate and the 7-day reserve repo rate – by a mere 5 basis points earlier this month.

The Chinese central bank is expected to continue targeted liquidity injections and continuing to push banks to lend more to smaller private-sector businesses, who account for the majority of the nation’s employment.

The State Council, the country’s cabinet, has continued to rule out a resumption of the all-out stimulus it undertook in response to the global financial crisis in light of the problems that policy created in the China economy.

It has also downplayed the importance of achieving a particular growth target since employment has remained stable.
The world’s second largest economy is expected by many analysts to set a growth target of “around 6 per cent” in 2020, compared with the 6 to 6.5 per cent range for this year.

Given the recent upward revision to the size of China’s economy last year following the completion of the latest economic census, economists believe a growth rate of 5.8 per cent next year will be enough for the government to achieve its overarching goal of creating a “moderately prosperous society” by doubling the size of the economy in the decade to 2020.

“The overall situation is that the global and Chinese economies are going downward. Luckily, China is not the worst and it knows exactly what it should do,” former PBOC adviser Li Yang told Friday’s conference.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Hungary Ranked Among the World’s Safest Travel Destinations for 2025
G7 Leaders Fail to Reach Consensus on Key Global Issues
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
Shock Within Iran’s Leadership: Khamenei’s Failed Plan to Launch 1,000 Missiles Against Israel
Wreck of $17 Billion San José Galleon Identified Off Colombia After 300 Years
Man Convicted of Fraud After Booking Over 120 Free Flights Posing as Flight Attendant
Iran Launches Extensive Missile Attack on Israel Following Israeli Strikes on Nuclear Sites
Beata Thunberg Rebrands as Beata Ernman Amidst Sister's Activism Controversy
Hungarian Parliament Approves Citizenship Suspension Law
Prime Minister Orbán Criticizes EU's Ukraine Accession Plans
Hungarian Delicacies Introduced to Japanese Market
Hungary's Industrial Output Rises Amid Battery Sector Slump
President Sulyok Celebrates 15 Years of Hungarian Unity Efforts
Hungary's Szeleczki Shines at World Judo Championships
Visegrád Construction Trends Diverge as Hungary Lags
Hungary Hosts National Quantum Technology Workshop
Hungarian Animation Featured at Annecy Festival
Israel Issues Ultimatum to Iran Over Potential Retaliation and Nuclear Facilities
UK and EU Reach New Economic Agreement
Coinbase CEO Warns Bitcoin Could Supplant US Dollar Amid Mounting National Debt
Trump to Iran: Make a Deal — Sign or Die
Operation "Like a Lion": Israel Strikes Iran in Unprecedented Offensive
Israel Launches 'Operation Rising Lion' Targeting Iranian Nuclear and Military Sites
UK and EU Reach Agreement on Gibraltar's Schengen Integration
Israeli Finance Minister Imposes Banking Penalties on Palestinians
U.S. Inflation Rises to 2.4% in May Amid Trade Tensions
Trump's Policies Prompt Decline in Chinese Student Enrollment in U.S.
Global Oceans Near Record Temperatures as CO₂ Levels Climb
Trump Announces U.S.-China Trade Deal Covering Rare Earths
Smuggled U.S. Fuel Funds Mexican Cartels Amid Crackdown
Austrian School Shooting Leaves Nine Dead in Graz
Bezos's Lavish Venice Wedding Sparks Local Protests
Europe Prepares for Historic Lunar Rover Landing
Italian Parents Seek Therapy Amid Lengthy School Holidays
British Fishing Vessel Seized by France Fined €30,000
Dutch Government Collapses Amid Migration Policy Dispute
UK Commits to 3.5% GDP Defence Spending Under NATO Pressure
Germany Moves to Expedite Migrant Deportations
US Urges UK to Raise Defence Spending to 5% of GDP
Israeli Forces Intercept Gaza-Bound Aid Vessel Carrying Greta Thunberg
IMF Warns of Severe Global Trade War Impacts on Emerging Markets
Low Turnout Jeopardizes Italy's Citizenship Reform Referendum
Transatlantic Interest Rate Divergence Widens as Trump Pressures Powell
EU Lawmaker Calls for Broader Exemptions in Supply Chain Legislation
France's Defense Spending Plans Threatened by High National Debt
European Small-Cap Stocks Outperform U.S. Rivals Amid Growth Revival
Switzerland Proposes $26 Billion Capital Increase for UBS
×