“It should be noted that incorporating bond trading into the policy toolbox does not mean quantitative easing,” the governor said at the forum, which is regarded as an influential finance industry gathering and which represents Shanghai’s ambitions to become a global financial centre.
Pan said it should be viewed as a liquidity-management tool – one that will be utilised with others to foster a suitable liquidity environment.
“This process is gradual, since the pace of bond issuance, maturity structure and custody system need to be studied and optimised,” he explained.
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Can China learn lessons from Japan’s ‘lost 30 years’?
Can China learn lessons from Japan’s ‘lost 30 years’?
Pan’s comments came amid market discussions about whether stronger support is needed, and about whether the central bank’s expected bond purchase would equate to quantitative loosening.
The latest key economic metrics present a mixed picture of the economy after some policy-easing measures, like those for the property sector, appear to have fallen short of their intended effects.
“The estimation right now is that the economy will reach a growth rate of 4.8 per cent in 2024 if we do not see more policy measures,” he said.
The PBOC has been sticking to accommodative policies, through structural tools such as relending, open market operations and cuts to the reserve requirement ratio in recent years.
Beijing has indicated that the central bank needs to expand its policy toolbox.
Beijing sees no need for big changes or big easing
The PBOC has not bought bonds for years because monetary authorities did not want to fuel market speculation of a major stimulus.
Li Xuenan, a finance professor with the Cheung Kong Graduate School of Business in Beijing, said that, quantitative easing aside, the PBOC still has many tools to reflate the economy, and that Beijing remains convinced accommodative policies are adequate and will gradually pay off.
“Whether there is such a quantitative easing or not depends on the result of a combination of multiple tools,” Li said. “Beijing sees no need for big changes or big easing.
“It is also essential to prevent policy from fluctuating greatly, given the lessons we learned from the 4 trillion yuan package of 2008, when we threw in trillions in just a few months and then tightened the policy too quickly. A lot of the money released went into the property sector, while the rapid tightening brought unnecessary liquidity risks to enterprises.”
Speaking at the forum on Wednesday, Zhu Hexin, head of the State Administration of Foreign Exchange, said the management of funds of qualified foreign institutional investors will be simplified to help foreign investors invest in domestic securities.