Countries are extremely easing monetary policies, slashing interest rates and RRRs, to counteract the pandemic' blows on the financial market and real economies. #QE will inevitably expand the balance sheets of central banks, but it won't necessarily speed up total credit growth.
The massive easing of developed countries will spill over, especially to emerging markets: its income effect stabilizes global financial market and promotes economic pickup; but its relative price effect hampers capital flows and exports of emerging markets.
For now, the income effect is stronger in China than the relative price effect, which hasn't placed much upward pressure on RMB yet.
The easing is expected to continue for long. Macroeconomic policymaking depends on whether the virus can be contained. Meanwhile, the extraordinary countermeasures amid crises usually find it hard to exit properly.
It's guessed that the new global economic landscape would feature low interest rates, low growth, low inflation, high debts and high asset prices.
Based on this assumption, the following things are proposed to deal with the situation:
1. #China should adjust #interestrate based on domestic economic situation;
2. Keep its #exchangerate flexible, give it full play as automatic stabilizer;
3. Facing the increasing strain on capital flow and RMB exchange rate, the key is countercyclical management of capital flow;
4. Domestic financing of Chinese real estate enterprises should be liberalized, and that will suppress carry trades.

By CF40 Senior Fellow Zhang Bin:
mp.weixin.qq.com/s/DfLFMg2Wxan4…

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More from @ChinaFinance40

Jul 27
The latest CF40 quarterly report led by Dr. Zhang Bin, CF40 Senior Fellow and Deputy Director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, points out several major challenges facing the Chinese economy in the second half of the year:
1) pandemic-induced uncertainties; 2) weakening of consumption, real estate and export at the same time; 3) enlarging gap between fiscal revenue and expenditure of local governments; 4) possibilities of new risk events; and 5) further escalation of global geopolitical conflicts.
Against this backdrop, while it remains a priority to implement aggregate target and policy tools aimed at expanding total demand in order to achieve a decent annual growth, the report reminds that specific policy tools would also be necessary to address structural problems.
Read 6 tweets
Jul 26
Global economic recovery faltered. In June, JPMorgan Global Composite PMI was 53.5, 2.2 pps up from May; JPMorgan Global Manufacturing PMI was 52.2, 0.1 pps down from May.
Total social financing (TSF) grew faster. June recorded a YoY growth in M1 of 5.8%, 1.2 pps high than in May; that of M2 was 11.4%, 0.3 pps higher than in May. TSF grew YoY by 10.8%, 0.3 pps higher than the increase in May.
The 7-day repo rate rose. The 7-day interbank pledged repo rate averaged at 1.87% in June, 13 bps higher than in May. CHINA’S MACROECONOMIC ENVIRONMENT June 2022
Read 4 tweets
Jul 25
China’s economic performance rebounded. The official manufacturing PMI in June stood at 50.2, 0.6 percentage points (pps) up from May. 1/7
Manufacturing PMI of large businesses was 50.2, 0.8 pps lower than in May; that of medium-sized manufacturers was 51.3, 1.9 pps up from May; and that of small ones, 48.6, 1.9 pps up from May.2/7
Growth of industrial production rebounded. In June, the value added of industries above designated scale nationwide grew by 3.9% YoY, 3.2 pps faster than in May, and 0.8% MoM. 3/7
Read 7 tweets
Jan 14
CF40 member ZHONG Wei points out that to realize a steady operation of China’s economy in 2022, we need to understand what it means to be “steady” from different frames of reference and policy perspectives.
Read more at: mp.weixin.qq.com/s/KlRv7dtcpPaZ… 1/6
1. Maintain the long-term trend of growth since the reform and opening up. Despite the shift from high speed growth to high quality growth, it may be necessary to maintain a growth rate of no less than 4% or slow down the pace to make it manageable. 2/6
2. China’s central bank and most international organizations think that the reasonable potential growth rate of China’s economy is 5-6%, which might be considered as the growth benchmark for 2022 and the 14th five-year plan period.3/6
Read 6 tweets
Jan 13
Prof Huang Yiping, CF40 Academic Committee Chairman, stressed recently that China should continue to press ahead with market-oriented financial reform. 1/5
“Let the market play a bigger role in the resource allocation of the financial system, instead of relying on government intervention,” he said.

Specifically, he said China needs to move forward at two fronts: financial innovation and financial supervision. 2/5
On financial innovation, he suggested to boost the capital market and increase the share of direct financing in financial intermediation, stimulate bank innovation, and encourage digital finance innovation. 3/5
Read 5 tweets
Jan 12
While still in the early stage of development, #DeFi could play an important role in the future financial system as the blockchain becomes more expansive and traditional assets, more tokenized. 1/8
Given that the main challenges hindering the development of DeFi are similar to those facing the traditional financial system, regulation of it could draw on some of the existing rules, CF40 says in a recent article:

mp.weixin.qq.com/s/707W5vSg3_aH…

2/8
First, regulation of DeFi activities should follow the “same risk, same rules” principle. Regulatory measures should be able to lead DeFi players to internalize the high leverage-driven pro-cyclical costs...3/8
Read 8 tweets

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