Your are here: Home» News

HUANG Yiping: PBOC Should Avoid Excessive Easing


(MNI) Beijing - China’s central bank should avoid overly expansionary monetary easing and makeonly temporary use of its targeted tools given the economy could grow at up to 6% this year aspent-up demand fuels a recovery, a former People’s Bank of China adviser told MNI.

Growth of 5%-6% in 2023 is a reasonable estimate given all Covid restrictions have been lifted,said Huang Yiping, a prominent economist and former member of the PBOC’s Monetary PolicyCommittee, warning that excessive stimulus could lead to overheating and jeopardise muchneeded structural reforms vital to drive China’s long-term growth.

The likely 5%-6% GDP expansion is a satisfying performance, even though it is still lower thanthe current potential growth rate of the country considering the low comparison base in 2022, said Huang, now deputy dean of the National School of Development at Peking University.

Additional policy stimulus, compared with the past three years, is less necessary in 2023, eventhough monetary policy will remain accommodative, he said. But if the economic recovery isweaker than expected, more monetary efforts should be made.

He is cautiously optimistic about a strong recovery as consumers and businesses return tonormal after the lifting of Covid restrictions. However, he was cautious on the risk posed byrenewed waves of infections and the weakened balance sheets of the government, householdsand companies. (See MNI PBOC WATCH: Five-Year LPR Cut An Option If Growth Falters )

I think the recovery of consumption will be a gradual process rather than a steep jump, whichwill be based on an improvement in employment, income, as well as economic activity, he said.

The surge in household saving, resulting mainly from the redemption of wealth managementproducts and a reduction in house buying, will hardly prop up consumption at a fast pace, hecontinued.


Huang is wary of the potential overhang on growth following three years of government supportfor troubled companies, particularly small and medium-sized businesses, through increasedcredit support. The debt/assets ratio of private companies now exceeds that of state-ownedenterprises. The raised debt will restrain their capacity for further expansion, he said.

I estimate the economy will see a recovery at the macro level, while still struggling at the microlevel, even though some sectors, such as tourism and catering, may rebound fast, he noted.


So-called structural monetary tools that the PBOC has deployed in recent years to provide cheapfunds to specific sectors - such as SMEs, green transition, infrastructure, and the propertymarket - have played an important role in supporting growth.

Huang argues the tools are necessary in special circumstances, such as during the pandemic,when the transmission of monetary easing is impaired by wary banks not willing to lend or whenfiscal policy is less forceful than expected.

The use of these tools should be temporary and their amounts limited as loans made bylenders may not perfectly align with the intended use of the tool, he said. Additionally, the bigflow of policy funds into targeted sectors is not in line with market-oriented principles, whilesome loans may fall short of risk-control standards and drag down banks’ asset quality.

Over the long term, the targeted policy supports for specific sectors are more efficient if theyare implemented by fiscal authorities and policy banks," he said.


From: MNI, Feb 21, 2023.