Caixin
Nov 07, 2020 05:14 AM
FINANCE

China Talks Stimulus Exit Again as Economy Recovers

Photo: Bloomberg
Photo: Bloomberg

(Bloomberg) — China’s central bank once again raised the prospect of winding down its monetary easing policies, in sharp contrast with the U.S. and Europe, where a resurgence in virus cases has forced governments to consider more stimulus.

Policymakers globally are discussing the timing of stimulus withdrawal, and the consensus is that it should be sooner rather than later, Liu Guoqiang, vice governor of the People’s Bank of China (PBOC), said Friday.

“Exit is a matter of timing, and it is also necessary,” he said. “But the timing and method of exit need to be carefully evaluated, mainly based on the status of economic recovery.”

The PBOC has taken a measured approach to monetary easing this year, lowering interest rates, injecting liquidity and giving businesses loan repayment holidays. Governor Yi Gang previously told markets to start thinking about an exit from the looser financial policies.

The “international economy is recovering in general, and China’s overall situation is better than the international economy,” Liu said.

China’s economy has made up all the losses sustained in the first half, with the recovery first driven by exports and industrial output and then strengthening as consumption picked up. That’s a rare positive for a global economy still clawing its way out of its worst slump since the Great Depression, which is now being complicated by the resurgence of Covid-19 cases in Europe and the U.S.

“We have done some research recently, and we can see from the trend that our country’s economy is relatively strong, policies are having an effect, and market confidence is recovering,” Liu said at a press conference in Beijing with other financial officials. “But adjustments of policies shouldn’t be rushed or weaken the effect of serving the real economy, nor can there be a policy cliff.”

Financial Risks

Liu didn’t provide details as to the timing of a pullback in stimulus, while emphasizing that policy measures will be adjusted based on changing conditions and market demand. He said support will be further increased in areas that require long-term assistance.

Separately, the central bank released its Financial Stability Report, which highlighted financial risks stemming from rising indebtedness.

Aside from the pandemic, “the default risks of some companies have increased, which may be transmitted to the financial system,” according to a statement accompanying the report. The central bank said it will seek to manage those risks, resolve gaps in regulation and prevent systemic financial threats.

The PBOC also discussed progress on its digital currency, saying:

• There is no timetable for the official launch of the digital yuan system.

• It will continue to steadily advance the research and development of the digital yuan system, conduct pilot tests and strengthen relevant research on policies and impact.

• China will improve its fintech regulatory framework and introduce tools to regulate technology innovation.

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