CHINA needs a bit more monetary easing to offset the effects of its financial stability measures, but not so much easing that its structural-adjustment agenda is damaged, according to David Mann, regional head of research in Asia for Standard Chartered Bank.

Mann manages the bank’s team of economists surveying the scene in China’s mainland, Taiwan, Hong Kong, South Korea, Singapore, Indonesia and Thailand. He is a regular commentator on CNN, BBC World, CNBC and Bloomberg Television.

He was previously based in New York, where he was responsible for spearheading coverage of the US economy, managing the bank’s Latin American team and providing clients with the bank’s view on Asia in the US time zone. Prior to that, Mann was a senior foreign-exchange strategist based in London and Hong Kong.

He holds a bachelor of science in economics from the University of Warwick, and a master of science in finance from the University of London.

During an exclusive interview with Shanghai Daily at Standard Chartered China’s headquarters in Shanghai, Mann said the market would get more used to instruments adopted by the People’s Bank of China to fine-tune the economy. He called it “walking a tightrope.”

Q: Although Chinese Premier Li Keqiang signaled earlier that broad-based monetary easing would not happen in China, some analysts and economists seem certain that China needs stimulus to stabilize the economy. What’s your take on that?

A: It’s something that we all need to get used to around the world, what with so many transitions going on at the same time. One of the biggest transitions is happening in China — a transition to a more sustainable growth rate and also transition to a point to decide when to have a broad-based easing.

Based on the past, more people, including us, would expect to see more easing as key economic data justify it. We see some softer data and the property market is still not doing too well, which leads us to expect more easing.

It’s really about the trade-off between the long-run and short-run objectives of policies, and how strongly determined policymakers are to stick with the long-term objective of trying to create more sustainable growth without going back to unsustainably fostered credit growth, versus stimulating too quickly just for a few months of data that have not been quite as good as expected.

The growth rate right now seems to be generating enough jobs to keep policymakers comfortable. There’s a case that a broader easing could have already been undertaken via tools such as the central bank’s standard lending facility. I doubt that we will see a broad-based easing in the short-term.

 Q: Do you think more easing measures are necessary for economic stabilization in China now?

A: I think it’s necessary to have some more easing, but the question is through which channels. I think an outright interest rate cut and a broader-based tool like a reserve requirement rate cut would send the right signals. On top of that, encouragement for more lending in the banking sector may become more necessary, partly because recent changes aimed at creating more financial stability also had a knock-on impact that hurt the credit data that we have seen.

It’s like walking a tightrope. The market needs a bit more stimulus, but not so far as to send the signal that the long-term objectives have been pushed back in the agenda. I think we need to see a significant further deterioration in the data before we’ll see very broad easing measures.

Q: It been reported that the People’s Bank of China pumped 500 billion yuan (US$81.5 billion) of liquidity into the top five Chinese banks last month. The scale is believed to be equivalent to a reserve requirement ratio cut for the commercial banks. Do you think it’s going to become a standard procedure for the central back to wield stimulus instruments in a more private way?

A: Yes, it’s approximately a 45 basis point cut. We’ve also seen previously targeted measures taken toward small and medium enterprises. This is another subtle measure in what many people suspect is quantitative easing during the year. Once you add these up, such as various deregulations at the local level and urbanization in key cities, it’s a combination of policies.

I don’t think the authorities want the key players in the economy to be continuously dependent on some big bang announcement. Instead, when credit conditions have tightened more than the authorities prefer, subtle changes can be made.

I think that’s something we need to get used to. So far we haven’t seen any big broad-brush measures. They have probably been saved for a time when the economy is doing much worse than it is currently. Today, it may be slower, but it’s not a collapse. I don’t sense any panic right now.

Q: The major economies are taking very different monetary policy approaches. For example, the Fed has begun to normalize its balance sheet, while the European and Japanese central banks are still at the early stages of easing. What does that mean for China?

A: Divergence is exactly the word.
We see divergence on monetary policies and particularly in economic performance. The US is doing better, while Europe is disappointing, partially because of geographical political shocks. Japan is suffering from its own sales tax hike.

The risk is if Japan continues its currency policy, which is ultra aggressive in terms of the increase in the Bank of Japan’s balance sheet, compared with GDP. They may continue beyond March next year and continue as long as necessary to get inflation higher. I think the risk factor to watch from China’s perspective is actually on the currency side. The yen started to weaken sharply. President of the European Central Bank Mario Draghi was quite clear that he expects monetary easing measures to be implemented, which would also be a negative factor for the currency.

I think we are getting to a stage where, globally, we need to be careful not to see too much volatility in the currency markets. The yuan is still on a gradual appreciation path, but if the dollar starts to strengthen dramatically against the euro and the yen, that path may end up slowing.

Q: Do you think the gradual appreciation of the yuan could be underlined by its accelerating internationalization?

A: Market forces could fully determine the rate for the yuan only when we reach the point where the market forces believe there’s a two-way risk. I don’t think we will see so much liberalization that the market could move the yuan dramatically one way or the other before the market thinks it’s fairly valued.

It’s part of the motivation to allow the yuan to appreciate gradually. Eventually it will reach a point where it seems to be more fair value. And once we get there, I think there will be more opening up for the market forces to influence the rate.

Q: Do you think the yuan will reach its fair value before or after the internationalization procedure is completed?

A: I think the yuan needs to be more fairly valued before being fully liberalized. It’s actually part of the requirement. Don’t open if it could cause dramatic moves. It makes more sense to get there first, so when you open it, it becomes more stable.