The People’s Bank of China (PBOC) will seek to balance supporting economic growth and curbing emerging risks, Governor Yi Gang said, signalling a continuation of the central bank’s existing policy stance.
“Going forward, China’s monetary policy will, on one hand, adjust to new economic developments in a timely manner, and on the other hand maintain policy stability to avoid a policy cliff,” the central bank chief said at a virtual conference hosted by Hungary’s central bank.
He added that “China will try to maintain normal monetary policy for as long as possible and keep our yield curve upward sloping.”
China’s economy recorded growth of 2.3% last year despite the coronavirus slump, making it the only major economy to post an expansion. It did so without a major increase in monetary-policy stimulus, with officials attempting to keep control of debt levels.
With the recovery picking up speed, authorities have signalled they want to further scale back on stimulus and curb debt. Yi said the country’s total debt-to-output ratio climbed to around 280% at the end of last year — up 20 percentage points from the previous year — and he expects it to stabilise in 2021.
The central bank has vowed there won’t be any sharp turn in monetary policy as it seeks to maintain enough support in areas where the recovery is still fragile.
While the PBOC’s priorities for this year include stabilising the country’s debt ratio and bringing credit growth in line with the expansion in nominal gross domestic product, Yi also pledged to promote development of green finance.
Yi said areas for improvement include revamping the system for green financial standards, improving supervision and disclosure requirements for green-finance-related information, and enhancing policy incentives and support tools for reducing carbon emissions.
PBOC adviser Ma Jun said China should permanently abandon GDP targets from this year, and instead prioritise stabilising employment and controlling inflation as the major goals of macroeconomic policy. Continuing to set an official GDP target could prompt local governments to either inflate their statistics, or to borrow money to boost their economy which will add to the financial risk of hidden debts, he argued.
China should start appropriately adjusting its monetary policy now, according to Ma, as the macro-leverage ratio climbed rapidly last year and asset bubbles have started to emerge in the stock and property markets. However the policy shift shouldn’t take place too fast in order to avoid problems including the sudden suspension of projects and a rise bad loans.