China to Keep Monetary, Fiscal Policy Loose Next Year, Chief Economists Say
Qi Xinyi
DATE:  Nov 28 2022
/ SOURCE:  Yicai
China to Keep Monetary, Fiscal Policy Loose Next Year, Chief Economists Say China to Keep Monetary, Fiscal Policy Loose Next Year, Chief Economists Say

(Yicai Global) Nov. 28 -- China will continue with an expansionary monetary policy next year as there is still plenty of room for the downward adjustment of interest rates while fiscal policy will play a more pro-active role in driving economic growth, chief economists said at a recent forum,

An easy monetary policy will remain the basic tone next year, but fiscal policy will expand and have a bigger operating space than in 2022, said Lian Ping, president of the China Chief Economist Forum, which ended yesterday.

There may be more reserve requirement ratio cuts next year, Lian said. Monetary policy still has a large number of instruments that it can use, giving it ample easing space, but big, sustained adjustments are unlikely, he said.

The most recent reduction in the RRR, which will fall by a further 0.25 percentage point to 7.8 percent from Dec. 5, is a key signal, as in the past it would usually be trimmed by 50 basis points or more, Lian said. It is unlikely that the RRR will increase in the next five to 10 years, but rather that it will continue to slide.

A key motive behind reducing the RRR instead of the benchmark loan prime rate this time is to coordinate fiscal and monetary policies, said Sheng Songcheng, dean of the forum's research institute. Banks are major buyers of government debt, but to buy such debt, they must have money at hand, he added.

Staying Flexible

In the past three years, monetary policy has been supporting key areas and vulnerable links through structural tools so as to boost liquidity and it has had a remarkable effect, Lian said.

The Chinese government set a target for consumer inflation at 3 percent this year, Sheng said. In October, consumer prices gained 2.1 percent, leaving room for more monetary policy adjustments.

Monetary policy should stay flexible and appropriate to support economic recovery, keep prices stable and maintain the Chinese yuan exchange rate at an appropriate and balanced level, he added.

Real Estate

Financial institutions are now getting involved in the regulation of the real estate sector, Sheng said. Regulators had hoped to insulate the banking sector from property risks. But now, it seems defusing risks in the property industry will be very hard without involving financial bodies.

The real estate market is slowing significantly despite a slew of supportive policies, Lian said. It will take time for a recovery to be achieved, possibly another one or two quarters. The sluggish real estate market will continue to suppress the economy to some extent next year, he said.

It remains to be seen what the new model for real estate will look like, said Xu Gao, chief economist at BOCI Securities. But the new model could determine the outlook not only for next year, but for many years to come, he added.

Editors: Liao Shumin, Kim Taylor

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Keywords:   Economist,Monetary Policy