IMF urges China’s central bank to improve communications to ensure financial stability

China’s central bank must improve its communications with market players to ensure financial stability as the country opens its capital markets further to foreign investors, representatives from the International Monetary Fund (IMF) have urged in a working paper published over the weekend.

“China is at a communications crossroads, driven both by domestic and increasingly external factors,” wrote IMF chief China representative Alfred Schipke, Oxford Professor Michael McMahon and Professor Li Xiang from Germany’s Halle Institute for Economic Research.

“Better communication will become paramount to improving the effectiveness of monetary policy, reducing excessive volatility, and fostering financial sector stability,” they said.

The IMF’s recommendation comes as Chinese officials grapple with increasingly bearish sentiments towards the domestic capital markets and economic landscape as effects of the US-China trade war begin to bite. Better communication could also help China draw more foreign investors to its stock and bond markets.

Although the People’s Bank of China had stepped up such efforts, it was also inhibited by political reasons and what it can communicate as a regulator, pointed out Liu Shengjun, president of the Shanghai-based China Financial Reform Institute.

“Much of the decision-making power is not in its hands. There’s also no tendency that its independence will be significantly increased,” Liu said.