(Yicai) April 24 -- With the gradual improvement of the transaction activity and size of China’s treasury bond market, the Chinese central bank could already implement its monetary policy through treasury bond trading in the secondary market, according to an official.

The People’s Bank of China’s trading of treasury bonds in the secondary market can be a liquidity management method and a monetary policy reserve tool, Financial News reported yesterday, citing an official at the PBOC. China’s treasury bond market has become the third-largest worldwide, making the above operations possible, the official added. 

Last October, China’s central financial work conference proposed enriching the country’s monetary policy toolkit and gradually increasing the trading of treasury bonds in the central bank’s open-market operations. 

The PBOC attempted trading treasury bonds in 1997 but stopped soon after because of insufficient market size. Treasury bonds are now used as pledges of repurchases to provide the market with short-term funds. However, they are not included in the central bank’s balance sheets. 

In the future, the PBOC will likely increase its trading of treasury bonds progressively because the market liquidity is sufficient and funds’ interest rates are steady, said Ming Ming, chief economist at Citic Securities. Cutting the reserve requirement ratio and slashing interest rates as monetary policy tools still have huge room for operation, Ming noted. 

Central banks of some developed economies are forced to buy treasury bonds to realize their monetary policy targets if they run out of normal monetary policy tools. However, China insists on using normal monetary policy tools. As a result, the PBOC’s trading of treasury bonds is totally different from other central banks’ quantitative easing operations, the official pointed out. 

Last year, China issued CNY11 trillion (USD1.5 trillion) worth of treasury bonds, reaching a balance of CNY30 trillion as of the end of last year, up by about CNY4.2 trillion (USD579.6 billion) from a year earlier, according to data disclosed by China’s Ministry of Finance. 

Editors: Dou Shicong, Futura Costaglione