People's Bank Governor: "Must Maintain Normal Monetary Policy as Much as Possible"

[Asia Economy Beijing=Special Correspondent Park Sun-mi] Yi Gang, Governor of the People's Bank of China, argued that normal monetary policy should be maintained for as long as possible, suggesting that there will be no drastic monetary easing measures to revive the economy. This statement comes amid divided opinions on whether aggressive stimulus measures are necessary for the Chinese economy, which contracted by 6.8% in the first quarter due to the impact of the novel coronavirus disease (COVID-19).

According to the South China Morning Post (SCMP) in Hong Kong on the 28th, Governor Yi wrote in an article for the Chinese government academic journal "Economic Research" over the past weekend that the impact of COVID-19 on the Chinese economy is temporary. He explained, "The COVID-19 shock is temporary. The Chinese economy has strong resilience and tremendous potential. The fundamentals for high-quality development have not changed."

Governor Yi’s description of the COVID-19 impact as temporary implies that China may not implement large-scale stimulus measures like those during the global financial crisis. In China, after confirming a -6.8% economic growth rate in the first quarter earlier this month, voices calling for economic revival through active fiscal policies and monetary easing have increased. On the other hand, some argue that large-scale stimulus could cause financial risk side effects and that stimulus measures involving excessive spending should be avoided, leading to a sharp division of opinions.

Governor Yi stated, "Normal monetary policy should be maintained for as long as possible," adding, "If macro policy stimulus is too strong, there is a risk of inflation and an increase in leverage (debt) ratios." He further said, "China must maintain a balance between growth stability and risk prevention. If additional stimulus measures are introduced, the debt-to-GDP ratio will rise further. It already recorded 245.4%, up 6.1 percentage points last year. We must keep this as stable as possible."

Governor Yi believes that instead of comprehensive monetary easing, tailored support that allows continued financial assistance to the real economy would be more effective. He mentioned, "Liquidity should be maintained at a reasonable level, and support should focus on companies affected by COVID-19," adding, "Along with this, further financial market reforms and opening, reforms of the initial public offering (IPO) system, activation of private equity investment, and deregulation of foreign financial services are necessary."

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