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In 2009, China's GDP grew by 8.7% year-on-year. The Chinese economy has a huge momentum of V-shaped recovery, mainly from loose monetary policy. At the end of 2009, broad money (M2) increased by 27.7% year-on-year, exceeding the target of the beginning of the year by 10 percentage points; narrow money (M1) increased by 32.4% year-on-year, and the growth rate was 23.3 percentage points higher than that of 2008, the highest level in 15 years. Such a strong money supply has supported economic growth significantly more than the "guarantee eight" goal.
So, how will monetary policy be interpreted in 2010? In my opinion, there are three major points to watch.
First, the tone of the monetary policy is still loose. From now on, if the economic stimulus is not diminished, then the first quarter of this year will see signs of overheating. If the brakes are slammed after the overheating of the economy, the economic slowdown in the second half of the year will exceed the current expectation, and the Chinese economy will once again have a V-shaped bottom.
In fact, the first side effect of loose monetary policy has long since emerged, that is, the asset bubble. However, the macro-control department's strategy to deal with asset bubbles is not to take less of the "partially loose monetary policy", but to open other drugs or eat more drugs. For example, in the real estate market, at the end of last year, measures such as increasing the down payment ratio of mortgage loans, strictly controlling the second set of lending, and cleaning up the land hoarded by developers were launched.
In the short term, the above measures can play a role in suppressing the bubble, but if the degree of easing of monetary policy remains the same, the bubble will eventually be blown up. According to data released by the National Bureau of Statistics, the transaction prices of commercial housing in Beijing and Shanghai increased by 64% and 55% respectively in November last year.
The monetary policy in 2010 is expected to be sufficiently loose. Because last year, commercial banks issued 10.52 trillion yuan of foreign currency loans, an increase of 5.54 trillion yuan year-on-year, resulting in excessive funds for state-owned large and medium-sized enterprises. According to this estimate, about 2 trillion yuan has not been used in a timely and reasonable manner. If the RMB loan of commercial banks increased by 7.5 trillion yuan this year, it seems to have only increased by 18.75% year-on-year, but it actually increased by 25%.
Second, monetary policy will face a severe test. From the current point of view, China's monetary policy goal is returning to before 1995. As the central bank said recently, China’s monetary policy should be multi-objective. The current “four major goals of comprehensive balance†(economic growth, price stability, full employment and balance of payments) is appropriate; monetary policy tools More and more good, some tools should be retained even if they are not used now, in case of need.
However, the author believes that there will be inconsistencies between the multiple objectives of monetary policy. Before 1995, the pursuit of multiple goals reduced the independence of monetary policy, leading to the monetary policy of "taking care of one another." At that time, the central bank (the CBRC had not yet separated from the central bank) had almost never completed its mission and was criticized and accused. Now, even with a full toolbox, the central bank's monetary policy in 2010 will face a severe test.
The central bank will face a double test in 2010. First, between inflation and the decline in economic growth (unemployment growth), the central bank is facing a test (Phillips curve). Second, between the appreciation of the renminbi and the independent monetary policy, the central bank has not yet made a choice ("impossible three-in-one").
Third, inflation will force monetary policy to turn. If loose monetary policy does not change due to asset price bubbles, it will only change due to inflation. From the figures at the end of 2009, although the consumer price index (CPI) has fallen by 0.7% year-on-year, the rate of increase in the chain has not been underestimated. The CPI only turned negative from November last year, and only increased by 0.6% year-on-year. The index has risen 1.9% year-on-year in December. This shows that real inflation is approaching, not just anticipation.
China's macroeconomic policy is the primary goal of maintaining social harmony and stability, and this will not change for a long time to come. In 2009, the only factors that stabilized the hazard were high unemployment caused by low growth. Therefore, although it is deeply affected by the crisis, economic decision-making is relatively simple: just step on the gas pedal, do not have to worry about stepping on the brakes. After entering 2010, the foundation of economic recovery is still not stable, and inflation is approaching, leading to macroeconomic decision-making between embarrassing and braking.
Inflation is more detrimental to stability than unemployment. Unemployment will only lead to a deterioration in the living conditions of some people, and this disharmony factor can be temporarily alleviated by various actions and policies such as sending warmth. However, inflation may lead to dissatisfaction among the people, and even if it is temporary compensation, the government is not able to do so. Therefore, the ability of inflation to undermine harmony is far from being comparable to unemployment. If you recognize this, then macroeconomic policies must be more responsive to inflation than to unemployment. Therefore, when inflation really comes, the transition of economic policy from “guaranteeing growth†to “anti-inflation†may be faster than current expectations.
Three Aspects of Monetary Policy in 2010
In 2010, China's monetary policy has three major points to watch: First, the tone of monetary policy will remain loose; second, multiple policy objectives will make monetary policy face a severe test; third, inflationary pressure will force monetary policy to turn. Like other macroeconomic policies, monetary policy will be difficult between stepping on the accelerator and braking.