China’s Monetary-Policy Surprise

In economic policy, as in most other areas, actions speak louder than words. By cutting its policy benchmark interest rates, the People’s Bank of China has underscored the tactical focus of Chinese government’s stabilization policy: it aims to set a floor of around 7% on GDP growth.

NEW HAVEN – In economic policy, as in most other areas, actions speak louder than words. By cutting its benchmark policy interest rates on November 21, the People’s Bank of China (PBOC) has underscored the tactical focus of the government’s stabilization policy, which aims to put a floor of around 7% on GDP growth.

Achieving this goal will be no small feat. China’s economy is caught in the crossfire of structural and cyclical headwinds. Structural pressures have arisen from the shift to a new model of services- and consumer-led growth, and cyclical pressures stem from a tough global environment that has put downward pressure on the old model of export and investment-led growth.

The cyclical challenges, in particular, are proving to be more vexing than anticipated. Though exports have declined considerably from their pre-crisis peak of 35% of GDP, they continue to account for about 24%, leaving China exposed to the global growth cycle – especially to markets in the developed world, where demand is exceptionally weak.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/K8N7Y1W;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.