Some say #RMB exchange rate shouldn't be allowed to fluctuate freely. But Prof Yu Yongding says this has been proven wrong, and the best proof against it is the debate as to whether RMB exchange rate should be allowed to breach the critical level of 7 against #USD...1/6
This issue sparked controversy in the middle of last year. One view was that once the RMB exchange rate breaks the 7/USD threshold it will enter a freefall by as much as 20% or even 30%, which should not be allowed to happen...2/6
However, it was proven wrong. Facing the critical juncture, the #PBC remained calm and patient and did not intervene. It turned out that RMB did not end up in a crash as expected; instead, its exchange rate gradually stabilized...3/6
Prof Yu also reminds that discussions of exchange rate need to keep pace with the big adjustments in the country’s development strategies. The Chinese government has put forward the “#dualcirculation” strategy...4/6
Its core concept is that China’s economic growth should rely more on domestic market, which Prof Yu believes is correct. The government has released a signal that national development strategies may see big adjustments...5/6
But it doesn't mean that China will steer away from the general direction of reform and opening-up, but that the economy needs to be responsive to changes in the environment and development strategies need to keep updated. This is the necessary and correct thing to do. 6/6
• • •
Missing some Tweet in this thread? You can try to
force a refresh
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
Instead, it mainly adopts a model where local governments, financial institutions and local government financing vehicles work together to boost investment. 2/5
Statistics show that such a model has helped China stabilize its economic growth, but also increased the broad government debt to GDP ratio, raising concerns about the sustainability of government debt. 3/5
China could consider implementing negative individual income tax (IIT) to boost consumption and employment, advises CF40 research department. 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
A CF40 policy brief proposes a two-pronged policy scheme consisting of rewards and subsidies for businesses adding new jobs on one hand, and negative IIT on the other hand, which could drive spending and employment without causing excessive fiscal expenditure burdens. 3/4
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
It should be the most effective currency strategy for China's central bank, said CF40 Advisor Yu Yongding in a recent seminar.2/5
China should maintain a floating exchange rate regime to bring out its role as an automatic stabilizer while maintaining necessary capital control as a last resort.3/5
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
23% of the total labor in China are rural labor. In comparison, the percentage in highincome economies is only 3% or 4%. That means China needs to transfer 20% of its labor from rural to urban industries, which is huge given China’s enormous population. 3/5
#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
The policy brief proposes a two-pronged policy scheme consisting of rewards and subsidies for businesses adding new jobs on one hand, and negative IIT on the other hand, which could drive spending and employment without causing excessive fiscal expenditure burdens. 3/4
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