The Chinese monetary authority is prepared to counter shocks disturbing the domestic financial market amid trade tensions, as central bank officials expressed their confidence to stabilize market sentiment on May 10.
“In the face of internal and external changes in the economic environment, Chinese monetary policy has ample room to deal with the uncertainties,” said Sun Guofeng, director of the Monetary Policy Department of the People’s Bank of China, the central bank.
He said this at a news conference on May 10, answering a question on how Chinese monetary policy could adjust in response to rising external risks, especially referring to the escalated trade frictions between China and the United States.
Sun said that the central bank has not yet changed its monetary policy stance, keeping it as “prudent”, neither too tight nor too loose, to control the total money supply.
“We will do countercyclical adjustments, to prepare a sound monetary and financial environment,” Sun said, stressing that money and total financing growth should match the speed of nominal GDP growth. The policy adjustments will also depend on the changes in prices, or the inflation level, according to the central bank official.
Some structural monetary policy tools that can affect market liquidity, or “targeted tools” for releasing capital to specific financial institutions, will be used if necessary, Sun added.
Despite the US tariff hike on $200 billion worth of Chinese imports from 10 percent to 25 percent taking effect from May 10, China’s stocks surged, with the benchmark index — the Shanghai Composite Index jumping 3.1 percent to close at 2939.21 points. That revised a drop of 0.4 percent in the afternoon after the US started to increase tariffs on goods from China.
The CSI 300 index, composed of major companies listed both in Shanghai and Shenzhen, also ended sharply higher, up by more than 3.6 percent, marking the best one-day gains since late March.
Based on the actual influence of China-US trade tensions during the past year, the additional tariffs will have limited effect on China’s real economy this time and the impact of the stock market’s reaction will be much weaker, compared with the scenario in 2018, Ma Jun, a member of the PBOC monetary policy committee, told the central bank’s newspaper Financial News on May 9.
That may only drive China’s GDP growth rate back by 0.3 percentage points, a situation which will be under control, Ma said in the interview.
The recently released policies, including the more proactive fiscal policy, and the improved monetary conditions, are expected to strengthen the effects on promoting the real economy. And the current domestic macroeconomy, along with the sound policy environment, could help the market strengthen its resilience in the face of new external shocks, Ma was quoted as saying by the newspaper.
The central bank recorded a broad money supply growth, or M2, of 8.5 percent by April, slightly slower than 8.6 percent by March.