China Still Has Room for Monetary Policy, Ex-PBOC Head Says

(Bloomberg) --

China still has room for conventional monetary expansion, but its ability to deal successfully with a crisis depends on whether monetary policy can work together with fiscal and structural reform policies, China’s former central bank head Zhou Xiaochuan said Thursday.

“We can still try to avoid getting very soon into the negative interest rates area, if we can successfully manage macroeconomic control in this regard,” Zhou said at the Bloomberg New Economy Forum near Beijing. “Then we don’t need to consider that much about unconventional monetary policy.”

Global monetary authorities should think about how to prevent crises from occurring, and should “try our best” to avoid lowering interest rates all the way to zero before a crisis begins, Zhou said. He emphasized that rates in China are still much higher than in other developed nations.

Zhou’s comments underline the central bank’s concern about letting borrowing costs fall too much. Even with economic growth slowing, the focus has remained on managing risks from the economy’s massive debt load, and containing riskier borrowing from the shadow-banking sector.

Trade Wars

Zhou, who led the People’s Bank of China from 2002-2018, said debt bubbles and the impact of the trade war with the U.S. would be his main concerns going forward.

“There were trade wars in history that could bring global economy down. We need to seriously face that kind of possibility,” he said.

He also called for renewed study of how inflation is measured to make sure it accurately reflects changes in what people buy and their purchasing power.

“If we use a new concept, a new statistics package of inflation, we may have a different picture to understand better monetary policy,” he said.

The forum is being organized by Bloomberg Media Group, a division of Bloomberg LP, the parent company of Bloomberg News.

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