Thread by @ChinaFinance40

Sudden turns in macroeconomic policies before Q3, 2021 would be inadvisable, says Zhu He, CF40 Research Fellow. It’s not yet time for macroeconomic policies to change direction, not to mention the speed of the turn, he says. 1/8

cf40.com/en/news_detail…

Recent data suggest a slowdown in China’s recovery, with the output gap closing at a slower pace. It remains uncertain whether #export and real estate #investment can sustain momentum in the next two quarters. 2/8

Any weakening of domestic #consumption or manufacturing investment before they return to normal levels would be a big drag on aggregate #demand and economic recovery. 3/8

Hence, China should maintain expansionary policies until the recovery is more solid, or the #economy may face greater uncertainty. It should wait for at least another quarter to make sure that recovery is sustainable before exiting from the expansionary policies. 4/8

Fiscal policy should focus on improving the efficiency of special bonds, keeping growth of infrastructure investment and containing expansion in implicit debts;

monetary policy should aim at reinvigorating market players by reducing the interest rate via the price mechanism. 5/8

There is no need to release signals of monetary policy tightening or take any action before there is obvious sign of #inflation. 6/8

The PBC could prevent risks through reform measures such as enhancing macro- & micro-prudential management, cracking down on irregularities, improving the efficiency and transparency of the secondary market, etc. 7/8

Regulators must also fully understand the importance of communication and provide clear signals to guide market expectation. They should avoid giving misleading signals that add to market uncertainty, of particular note. 8/8