Ex-PBOC Official Says China Shouldn’t Rush to Tighten Policy

(Bloomberg) --

China’s economy isn’t ready yet for monetary policy tightening and authorities should delay any action until at least the second half of 2021, a former central bank official said.

“My opinion is that China is far from meeting the conditions for tightening monetary policy,” Sheng Songcheng, a former director of the People’s Bank of China’s statistics and analysis department, wrote in an article in local media.

“We might as well ‘let the bullet fly a little longer’,” he said, adding that at least in the first half of next year monetary policy shouldn’t be tightened.

PBOC officials have been discussing the possibility of withdrawing monetary stimulus for months now as the economy rebounds, though an increase in interest rates doesn’t appear to be in the cards.

Sheng said the primary task facing China now is to restore and stabilize economic growth. The foundation of the recovery remains weak, with investment falling short of expectations and consumption not yet fully back to where it was, he said.

Premature exit of monetary stimulus is also bad for risk prevention, the former PBOC official wrote, given the recent defaults in the bond market.

“Tightening macroeconomic policies may become the last straw on the camel, when enterprises face debt repayment risks,” he said.

Policy action could result in lower credit extension by banks, an increase in companies’ cash flow pressure and higher non-performing loan ratios for lenders, Sheng said. Moving too quickly could also cause a surge in short-terrm speculative inflows, which would boost the currency and weaken the competitiveness of exporters, he said.

©2020 Bloomberg L.P.

With assistance from Bloomberg