Opinion | To jump-start China’s sluggish economy, Beijing needs to use all its fiscal and monetary policy tools
- Yu Yongding says the Chinese central bank can’t devise an effective monetary policy when it is juggling too many tasks, including keeping the yuan stable. Beijing can’t obsess about currency stability when it needs to prevent a financial crisis
Although a slowdown was inevitable in China after four decades of breakneck growth, Beijing should try to stop further deceleration this year. Otherwise, China’s economic, financial and social stability will be jeopardised. This can be achieved if the government adjusts its macroeconomic policy.
Begin with monetary policy. The People’s Bank of China is currently responsible for – at a minimum – maintaining the stability of economic growth, employment, prices and the exchange rate. That is too many objectives to pursue simultaneously, as evident from sudden and frequent monetary-policy reversals.
Since late 2011, the PBOC has changed its policy stance four times, in response to fluctuations in housing prices. But its manoeuvres have often undermined its other objectives. For example, while tightening monetary policy can rein in runaway housing prices, it compounds the growth slowdown.
