Change in monetary policy
The Chinese economy is growing slower than expected. Analysts stated that the China Central Bank would soon loosen its monetary policy to stimulate the economy. If that happens, China will john other major economies in the world which arepursuing growth-friendly policies. The Central Banks of the European
Union, United States and Japan have realized that a tightened monetary policy could not protect the economy from the risks of the Brexit, trade tensions and financial vulnerabilities. The lowering of economy growth forecast by the International Monetary Fund at the beginning of the year further aggravated their sentiments.
Potential reasons slowing China’s economic growth
Although the international economy environment are extremely dynamic in recent years, China’s export is not severely impacted. Back in 2018, China’s export has increased by 9.9%, and the export to the United States has increased by 11.3%. In 2018, China’s export contribution rate towards economic growth is -8.5%, higher than that in 2017 by 0.5% (-9%). These factors indicate that the reason slowing China’s economy growth is more domestic demand than external influences.
The dilemma that China Central Bank is faced with
The relatively tight monetary policy has resulted in massive shut-downs of Chinese domestic SMEs. The SMEs suffer not only huge fiscal burden from the bank, but also the decreasing prices over the industrial products. A loosened monetary policy is life-saving for them.
On the other hand, the China Central Bank also realized that the decrease in product prices has not lowered China’s consumer price index (CPI), which instead has gone up by 2.5% in 2018. The China Central Bank fears that if monetary policy is loosened, the prices and investments in immovable properties especially real estates for residents will increase dramatically which is exactly the thing that China wants to avoid. Confronted with such a dilemma, the China Central Bank has been more careful and critical in loosening its monetary policies.
