China considers stimulus exit as economy recovers

Country’s overall situation is better than the international economy, says central bank official

People cross a road on a polluted day in Beijing on October 10, 2020. / AFP / GREG BAKER

China’s central bank has started talking about an exit of monetary easing as the economy’s recovery strengthens, in sharp contrast to the US and Europe, where a resurgence in virus cases has forced governments there to consider more stimulus.

Policy makers globally are discussing how to withdraw stimulus, and the consensus is that it should be done sooner rather than later, Liu Guoqiang, vice governor of the People’s Bank of China, said on Friday. “Exit is a matter of time and it is also necessary,” he said. “But the timing and method of exit need to be carefully evaluated, mainly based on the status of economic recovery.”

The timing and method of exit [of stimulus] need to be carefully evaluated, mainly based on the status of economic recovery

He added that the “international economy is recovering in general, and China’s overall situation is better than the international economy”.

China’s economy has regained all the losses made in the first half, with the recovery first driven by exports and industrial output and then strengthening as consumption picked up. That’s a rare positive for a global economy still clawing its way out of its worst slump since the Great Depression and which is now being complicated by the resurgence of Covid-19 cases in Europe and the US.

“We have done some research recently, and we can see from the trend that our country’s economy is relatively strong, policies are having an effect, and market confidence is recovering,” Mr Liu said in Beijing at a press conference with other financial officials. “But adjustments of policies shouldn’t rush, or weaken the effect of serving the real economy, nor can there be a policy cliff.”

Mr Liu didn’t provide any details as to the timing of a pullback in stimulus, while emphasising that policy measures will be adjusted based on changing conditions and market demand, and said that support will be further increased in areas that require long-term assistance.

The PBOC has taken a measured approach to monetary easing this year, lowering interest rates, injecting liquidity and giving businesses loan repayment holidays.