Yi Gang favors targeted stimulus, warns of prolonged global downturn

Business | 2 Dec 2019 9:30 am

The People's Bank of China governor sounded a cautious tone on the health of the global economy, while signaling that monetary policy makers will continue to refrain from large-scale easing, Bloomberg reports.

Policy should be prepared for a “mid- and long-distance race” and stick to a conventional approach as long as possible, according to the article by governor Yi Gang published yesterday on the WeChat account of Qiushi, the Communist Party’s flagship magazine.

In the article, Yi extensively reviewed the history of global monetary policy since the Great Depression. He said overly loose policy can harm long-term development, because it delays necessary reforms and fuels bubbles.

The comments came a day after the main factory gauge showed an unexpectedly strong improvement in November. The official manufacturing purchasing managers’ index climbed to 50.2, according to data released by the National Bureau of Statistics. That is the first reading indicating expansion since April, and may have given support to the idea that the world’s second-largest economy is stabilizing amid stimulus measures and better external demand.

Seasonal factors influenced the rise though, and downward pressures on China’s economy, including factory deflation, remain.

“The world’s economic downturn will likely stay for a long time,” he wrote. “We should stay focused and targeted, while not competitively lowering interest rates to zero or engaging in quantitative easing.” Economic development “should not be simply judged by gross domestic product growth,” Yi said, adding that the mission of monetary policy is to keep prices stable and protect people’s money from inflation.

He also repeated a pledge to keep the yuan flexible and not engage in competitive depreciation.

Yi’s comments come ahead of a high level economic meeting expected this month where top leaders and senior officials will lay out growth targets for 2020.

Economists anticipate the economy will slip to sub-6 percent in 2020, a situation Beijing may be comfortable with as long as employment and risk are in check.

In the purchasing manager report, a sub-index of new export orders climbed to seven-month high at 48.8 on easing trade tension, but was still in contraction. Businesses showed across-the-board improvement regardless of size, although small and medium-sized enterprises are still shrinking. Employment at factories remained unchanged at 47.3.

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