Published on Monday, April 26, 2021

China | Monetary policy challenges in the post-pandemic era

China’s monetary policy challenges in the post-pandemic time include to smoothly exit loosening monetary policy, to smoothen transmission mechanism, to redefine the role of monetary policy in financial stability, and to integrate carbon neutrality target into policy objectives.

Key points

  • Key points:
  • China, due to its effective containment of virus spread at the beginning of the pandemic, is the first one to normalize its monetary policy from May 2020 while other countries are still grappling with the pandemic.
  • The authorities took pains to pacify investors and quell the market panic. They also pledged that the normalization of monetary policy will avoid a “sharp turnaround”. However, the PBoC needs to further enhance its communications with the market in the course of policy normalization.
  • In the medium-to-long term, it’s important for the authorities to develop a smooth transmission mechanism of monetary policy conduct . The authorities need to enhance the central bank's communication with the market, to increase the depth and width of its bond market and work with other government agencies to root out the implicit guarantee provided by central or local governments.
  • Financial stability is the main challenge in the post-pandemic time.The market has been discussed and investigated whether and how to include asset prices into the monetary policy target.
  • The PBoC’s stance signaled that facilitating carbon neutrality will become part of monetary policy mandate in the long run which could bring new challenges to their monetary policy conduct.


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