China’s central bank keeps ‘cautious’ in bond trade despite Xi Jinping’s mandate

Though President Xi Jinping has instructed China’s central bank to buy and sell government bonds, the institution is likely to be modest in doing so

Analysts say bank wants to avoid large-scale intrusion into bond markets, prevent perceptions of quantitative easing or heavy-handedness

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President Xi Jinping has requested China’s central bank take part in the government bond trade, but analysts said the bank is likely to take a modest approach in following his instructions. Photo: AFP

Published: 10:00pm, 29 Mar 2024Updated: 7:08am, 30 Mar 2024

Despite instructions from President Xi Jinping to resume the trading of central government bonds, China’s central bank is expected to take a cautious approach to mitigate unexpected consequences for inflation and the exchange rate, analysts said.

At the twice-a-decade financial work conference, held last October, Xi requested the People’s Bank of China (PBOC) gradually increase the buying and selling of central government bonds in the secondary market – a tactic that has gone unused for more than two decades – as a way to enrich the monetary policy toolbox.

The instruction, only made public earlier this week with the release of a new book, fuelled feverish speculation over an aggressive easing of monetary policy.

The flurry of conjecture comes at a time when many observers are questioning whether China can achieve its 5 per cent target for economic growth this year while boosting the confidence of a sluggish private sector, resolving a crisis in the property market and handling the hefty debt loads of local governments.

The macro policy tone in 2024 is supportive but modest in scale

Wang Tao

Analysts said the president’s demand does not necessarily imply China will enter a round of quantitative easing (QE) in a similar fashion to Western central banks.

China’s central bank keeps ‘cautious’ in bond trade despite Xi Jinping’s mandate

Though President Xi Jinping has instructed China’s central bank to buy and sell government bonds, the institution is likely to be modest in doing so Analysts say bank wants to avoid large-scale intrusion into bond markets, prevent perceptions of quantitative easing or heavy-handedness

Though President Xi Jinping has instructed China’s central bank to buy and sell government bonds, the institution is likely to be modest in doing so

Analysts say bank wants to avoid large-scale intrusion into bond markets, prevent perceptions of quantitative easing or heavy-handedness