China's stimulation-oriented monetary policy accomplishes mission

16:43, November 05, 2010      

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China should return to a normal and prudent monetary policy since the unconventional policy in an unusual period of time has accomplished its mission, Zhang Jianhua, director general of the Research Bureau of the People's Bank of China, China's central bank, said on Nov. 4.

The third quarter monetary policy report previously announced by the central bank said that the continuity and stability of the policy will be continued, and at the same time, they will enhance their pertinence and flexibility and continue to guide monetary conditions to gradually return to the normal level according to the development of the situation.

Historically, there are four monetary policies in China, namely a prudent policy, appropriately tight policy, tight and moderately easy. In response to the domestic and international economic situation, China changed its monetary policy from tight to moderately easy at the end of 2008.

Zhang explained that monetary policy's return to normality is based on considerations in five aspects.

First, China's economic growth has further consolidated. Second, the CPI index that reflects the price level showed an increasing trend and is still likely to rise further. Third, the unemployment rate in China has fallen to the level it was at before the global financial crisis.

Fourth, international payments are balancing. The growth rate of China's trade surplus reversed from a negative value to a positive value, and the trade balance situation continues to improve. Fifth, the non-performing loan ratio of financial institutions continues to fall and the provision coverage ratio of assets has substantially increased.

Zhang further pointed out that China's domestic and international economic environment will face major changes in 2011, and the growth rate of the global economy is expected to accelerate. Meanwhile, there is still uncertainty about inflation, which the central bank cannot take lightly. Zhang also said that they will not allow the long-term negative interest rates to erode the savings assets of residents.

In addition, Zhang also said that the quantitative easing in the United States will lead to foreign capital inflows. Therefore, the central bank needs to strengthen liquidity management and guide the appropriate growth of credit. In regards to China's economic structural adjustment, Wang said that China's monetary policy in 2011 will also focus on this.

The U.S. Federal Reserve Board announced the release of the second round of quantitative easing monetary policy on Nov. 3 (local time). They will also purchase 600 billion U.S. dollars of long-term U.S. government bonds by the end of June 2011 to further stimulate the U.S. economic recovery.

By People's Daily Online


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