China’s Current Macroeconomic Situation Calls for New Policy Support

40

As far as monetary policy is concerned, the People’s Bank of China (PBoC) has taken measures to lower the reserve requirement ratio (RRR). However, the central bank also said that the current liquidity is already at a reasonably abundant level. On the one hand, the RRR cut will improve the capital structure and release long-term funds; on the other hand, it is to reduce the cost of capital for financial institutions. RRR cuts are not sufficient for systemic easing. Under the external situation of rising global inflation and monetary tightening by major central banks, the room for further expansion of aggregate policy is limited. In the future, monetary policy should pay more attention to structural policies and support SMEs and some emerging strategic industries through re-lending and other tools. At the same time, monetary policy tools will support the reform of the financial system and provide a stable monetary environment for systemic reform. 

In terms of fiscal policy, on the basis of a deficit-to-GDP ratio of 2.8% this year, the current policy focus is on reducing taxes and fees and investing in special bonds to help ease the burden on the real economy, and ensuring economic and fiscal stability through investment-driven growth. However, judging from the current performance of central and local state-owned enterprises, state-owned enterprises still maintain a rapid momentum of development this year, and they still make a certain contribution to government finance. At the same time, the top finance official also mentioned the possibility of raising funds in the form of short-term treasury bills, if necessary, to help stabilize government finance. Therefore, the strength of fiscal policy is expected to be further increased in the future, and fiscal policy will also play the main role of the new policy tool. 

Looking at the policy relaxation in the real estate market since the beginning of this year, the current risk prevention policy needs to accelerate the market clearing of real estate enterprises, so as to remove the obstruction, reverse the downward trend of the real estate market the soonest possible, and help stabilize the overall economic demand. In terms of the financial sector, the non-performing assets of commercial banks and non-bank financial institutions related to real estate have been gradually exposed. With the gradual implementation of the Financial Stability Law and the establishment of the financial risk prevention framework, accelerating the merger and reorganization of the real estate market and unloading the burden of the market should be the focus of future risk prevention policies, which is also conducive to the realization of a “soft landing” of the macroeconomy.