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China Finance 40 Forum (CF40) Profile picture
@ChinaFinance40
Jun 20, 2020 • 5 tweets • 2 min read • Read on X
A recent paper by Yu Yongding and Zhangyi on monetary financing in China:
mp.weixin.qq.com/s/ix7ANJ2j6iuU…
#monetarypolicy #fiscaldeficit #fiscalpolicy
In this paper, the authors first analyzed the impacts of two approaches to fiscal deficit financing (issuing government bonds and monetary financing), then further evaluated the possibility of adopting these approaches in China and their pros and cons.
They suggest China take the following order when choosing financing approaches: 1, issue government bonds to non-banking financial institutions (general public); 2, issue government bonds to commercial banks; 3, launch the Chinese version of QE; 4, monetary financing.
Because of the unique characteristics of the Chinese economy such as high savings ratios in the household sector and high growth rates, China may still be far from having to monetize its deficit. However, this approach should not be ruled out as an option.
China needs to stick to the core goal, i.e. economic growth; all policies must be flexible&reality-based, rather than rigidly based on traditional theories.Only in this way can it sustain its economic growth and successfully address various problems and challenges it faces.

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More from @ChinaFinance40

China Finance 40 Forum (CF40) Profile picture
Feb 22, 2023
According to CF40’s latest macroeconomic quarterly report ‘China's Countercyclical Fiscal Policy and Sustainability of Government Debt’, China has never heavily relied on budgetary spending to provide counter-cyclical stimulus. 1/5
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China Finance 40 Forum (CF40) Profile picture
Feb 22, 2023
China could consider implementing negative individual income tax (IIT) to boost consumption and employment, advises CF40 research department. 1/4
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China Finance 40 Forum (CF40) Profile picture
Feb 21, 2023
The PBC's "benign neglect," an indirect policy tool devised in 2022 to influence the value of the RMB, was quite successful. It allows the market to determine the exchange rate while retaining capital controls as a last resort.1/5
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China Finance 40 Forum (CF40) Profile picture
Feb 17, 2023
Despite the shrinking working-age population, there is a tremendous pool of surplus rural labor in China., said Caifang, Chief Expert of National Think Tank of Chinese Academy of Social Sciences. 1/5
Many analysts predict that China will not have a rapid growth rate in the future or emerge as the largest economy in the world because its working-age population and total labor have stopped growing. 2/5
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China Finance 40 Forum (CF40) Profile picture
Feb 16, 2023
#China could consider implementing negative individual income tax (IIT) to boost consumption and employment, suggests CF40 Research Department in a 2022 policy brief ‘Negative Individual Income Tax: Some Thoughts on Policies to Drive Employment and Consumption’. 1/4
It means that the government provides taxpayers with a certain amount of subsidy when the level of working income is lower than a given threshold. 2/4
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China Finance 40 Forum (CF40) Profile picture
Feb 3, 2023
Given China’s macroeconomic environment in December 2022, the following policies should be taken to boost China’s economic growth and deal with potential risks, said ZHANG Bin, CF40 Nonresident Senior Fellow: 1/5
1. Lower interest rate by 25 bps each time until the employment and growth targets are hit.
2. Issue new types of fiscally subsidized bonds and policy loans to support investment in public goods and quasi-public goods infrastructure projects that feature limited returns.2/4
3. Set up special funds to help market entities battered during the pandemic get back on their feet; increase the amount of living allowance for low-income groups. 3/5
Read 6 tweets

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