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China's economic recovery
EconomyChina Economy

Stronger monetary, fiscal policy coordination urged as China’s treasury-bond trade nears

  • Conditions are ripe for China’s central bank to trade bonds in the secondary markets, but it will be a gradual process, according to a former official

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Sheng Songcheng, former chief of the People’s Bank of China’s statistics department. Photo: China State Council Information Office
Frank Chenin Shanghai

With Beijing set to overhaul its monetary tools by restarting treasury bonds purchases in the secondary markets, China’s central bank and finance ministry are expected to dovetail efforts to support the economy as fiscal policies take on a crucial role, according to a former People’s Bank of China official.

Sheng Songcheng, the former chief of the PBOC’s statistics department, also said that conditions, including the sheer size and liquidity of China’s bond market, are ripe for the central bank to trade bonds in the secondary markets to inject money to aid the economy.

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His remarks at the annual Lujiazui Forum in Shanghai on Thursday came after PBOC governor Pan Gongsheng confirmed for the first time on Wednesday that discussions between the central bank and Ministry of Finance to end a two-decade hiatus on bond trading had taken place, following an order by President Xi Jinping at October’s twice-a-decade central financial work conference.

“Such coordination will see the PBOC dovetailing efforts with the finance ministry, as China’s macroeconomic management will be more about fiscal policies, while the PBOC will have a supporting role,” he said.

Beijing’s top leadership has mandated expansionary fiscal policy and prudent monetary policy, as well as an inter-cyclical and countercyclical adjustment mix, to keep the economy ticking, without resorting to aggressive quantitative easing.
But the world’s second-largest economy continues to be bedevilled by deflationary pressure and stubbornly weak demand, with property sector distress and a local government debt crisis still persisting.
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Questions have been raised about how Beijing should more effectively deploy fiscal and monetary policies to defuse crises for the economy to attain the around 5 per cent annual growth target, while also keeping risks at bay.

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