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China's monetary policy awaits cues from developed nations, researcher says

CHINA may not tighten its monetary policy before developed countries take action and the world should coordinate the pace of policy changes, said a researcher at the Chinese Academy of Social Sciences.

China needs exports to revive the economy while developed nations are major drivers of the country's export growth. The government's moderately loose monetary policy won't be changed in the short term, the researcher said.

"Before exports stage a stable recovery, China won't tighten its moderately loose monetary policy as exports still weigh quite a lot on the country's economic performance," CASS researcher Zhao Zhongwei said.

"It means a change in policy strategy won't come earlier than developed markets, which drive the growth of China's exports."

China's exports fell 21.4 percent year on year in June, though it has softened a bit from the dive of 26.4 percent in May, the lowest in at least 14 years.

In the first half, China's exports slumped 21.4 percent from a year earlier, dragging the country's gross domestic product down by 2.9 percentage points during the period.
The People's Bank of China said in a report on Wednesday that it would "fine-tune" its relatively easy monetary policy in a dynamic manner to more reflect the country's economic growth.

Following the remarks of the central bank, the Shanghai Composite Index fell more than 2 percent to a one-week low today.

But a fine-tuning was not the equivalent of a shift in policy stance, analysts said.

"China should stick to the current policy stance. But the strategy should change from a blood transfusion to help the economy produce blood to create sustainable growth. It depends on the accelerating reform of the economic structure instead of more lending," said Sun Lijian, a finance professor at Fudan University.

Peng Ken, an economist at Citigroup, said new yuan-backed loans in the first half were too much for the economy to digest.

"The current 30 percent is clearly way more than necessary. We believe that policy makers intend to keep lending growth in the range between 10 percent and 15 percent, consistent with 9 percent economic growth in the foreseeable future," Peng said.


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