The People’s Bank of China (PBOC) recently declared its intention to increase support to expand domestic demand in the wake of the ongoing trade tension with the United States. The bank is committed to making prudent monetary policies that are precise and forceful, maintaining reasonably ample liquidity, and making better use of overall and structural policy tools. This article will discuss the steps the PBOC plans to take to stabilize growth, employment, and prices, as well as promoting economic reform.
China’s economy has been thrust into the international spotlight as a result of ongoing trade disputes with the US, with concerns that a prolonged trade war could hinder its economic growth. As the trade war rages on, the PBOC has expressed its commitment to supporting the expansion of domestic demand by maintaining fiscal policy coordination between monetary policy and various fiscal management tools.
1) Making Monetary Policy Precise and Forceful
The PBOC has been pursuing a cautious monetary policy since the beginning of this year, and now pledges to enhance the precision and effectiveness of its strategies. The bank is believed to have shifted from a broad stimulus approach to a more targeted strategy to ensure policy normalization while minimizing potential risks to economic growth.
2) Maintaining Reasonably Ample Liquidity
Adequate liquidity can help to balance financial market supply and demand and stabilize growth. The PBOC has emphasized the importance of ensuring sufficient liquidity in the financial system, as well as balancing structural adjustments and containing financial risks. The central bank suggests accomplishing this by using a rational macro prudential policy framework and managing short-term liquidity fluctuations more effectively.
3) Utilizing Overall and Structural Policy Tools
The PBOC acknowledges that the ongoing structural changes in the Chinese economy call for better utilization of overall and structural policy tools. By working more closely with relevant government departments, the central bank aims to enhance the efficiency of these tools in addressing the root-causes of economic imbalance and promoting sustainable growth.
4) Stabilizing Growth, Employment, and Prices
The PBOC has also committed to playing a more significant role in stabilizing growth, employment, and prices in the Chinese economy. To achieve this, the bank will continue to adopt proactive fiscal policies and strive for consistency and coordination across different policy areas. Furthermore, it will take appropriate measures to support SMEs and private enterprises, stabilize employment, and mitigate the economic impact of external shocks on domestic growth.
5) Deepening Exchange Rate Reform and Increasing Yuan Flexibility
The importance of exchange rate reform has been firmly acknowledged by the PBOC, as it seeks to enhance the flexibility of the Yuan. Recognizing that a flexible exchange rate can help to absorb external shocks and maintain international competitiveness, the central bank is committed to deepening market-oriented reform initiatives to better reflect the underlying forces of supply and demand.
6) Improving the Monetary Policy Transmission Mechanism
In pursuit of economic stability, the PBOC has emphasized the need to improve the monetary policy transmission mechanism. By continuing to carry out targeted structural policy adjustments, the bank aims to ensure that the various financial market segments function well in serving the real economy and contribute to enhanced resource allocation efficiency.
In conclusion, the PBOC is taking a multi-faceted approach to safeguarding China’s economic growth during this turbulent period. Through precise and forceful monetary policy, adequate liquidity management, proper utilization of policy tools, and continuous efforts to stabilize growth, employment, and prices, the central bank is striving to support the expansion of domestic demand and enhance the country’s overall economic stability. By deepening exchange rate reform and improving the monetary policy transmission mechanism, the PBOC is also laying the foundation for China’s future economic growth and resilience.
