Zhou Xiaochuan: Vigilance Deflation Monetary Policy Is Still More Than Enough

On March 29th, Zhou Xiaochuan, vice chairman of the twelfth CPPCC National Committee and chairman of the people's Bank of China, and Secretary of the people's Bank of China, said at the #2015 forum of Asia Forum in Boao that China's next step is to carefully observe and track the global economic trend, including the fact that we are seeing a decline in inflation, and that commodity prices are falling and China's economic growth is slowing down.

The following is the transcript of his statement:

First of all, I would like to briefly introduce my understanding of the unconventional monetary policy, that is to say, my understanding of this concept. Then I can respond to the situation of China's monetary policy and how it is being implemented.

Let me first say that in the time of financial crisis, when the United States, Japan and the euro area began to use the unconventional monetary policy, what does this mean? What do I mean by the change of the situation? What do I think of two things? The first point is low inflation and even deflation.

In addition, there are still some challenges to come out of the financial crisis to achieve economic recovery. So a common phenomenon is that a common phenomenon of unconventional monetary policy is that interest rates first become zero interest rates and sub zero levels. That is to say, you must consider relying on these unconventional and quantitative monetary policies, inject liquidity into the economy, and achieve quantitative easing in a number of ways. The sub zero sector is one of them.

Another way, even if you adopt the policy of quantity and quantity, is not enough. You want the market participants to have long-term expectations, and expect to expect such policies to last for two to three years, or even longer. We used the forward-looking guidance of the market, which is expected to happen in the next two to three years.

But it can also cause great challenges and difficulties. Sometimes we wonder whether a banker really knows what will happen in a year or two, and what the situation will be. Anyway, this is my own understanding of the unconventional monetary policy.

Speaking of China, China has also made great efforts to get through the global financial crisis. But the situation in China is very different from that in the US and Japan. Basically, China's monetary policy is not to a large extent an unconventional monetary policy. China also has some experience in implementing unconventional monetary policy.

The first point is Asia After the financial crisis, from 2002 to 2008, that is, the financial crisis in 2008. From 2002 to 2008, China began to have very high current account surpluses, thus accumulating a large amount of foreign exchange reserves. At that time, the people's Bank of China felt that the traditional conventional monetary policy might not be very effective, so the PBC needs to rely on the quantitative stability of market liquidity.

So at that time, China monetary policy More often, I use the quantitative and quantitative hedges I have just said to achieve market stability. And through the implementation of a series of reforms, including foreign exchange Reform, exchange rate system reform and trade and investment liberalization have gradually reduced the current account surplus. From 10% of GDP, the current surplus has dropped to 2% of GDP, so it has gradually withdrawn from the unconventional monetary policy of that period.

Another unconventional monetary policy seems to me to deal with this global financial crisis. From the end of 2008 to 2009, it continued until the beginning of 2010. During this period, China implemented an economic stimulus policy. At that time, monetary policy, together with fiscal policy, was able to stimulate the development of the economy by implementing this expansive effect. It is hoped that the economic recovery can be achieved faster, that is to say, we need to achieve economic recovery at a faster pace.

Of course, the amount of economic stimulus is still very large, so it is a bit unconventional in terms of quantity. But this concept is not unconventional, because people are saying that fiscal policy and monetary policy should be able to achieve a very effective counter cyclical effect, so this is a conventional policy concept. But this measure is an unconventional measure. So now China has gone through two stages of unconventional monetary policy. I think China's monetary policy is still a regular monetary policy in my view.

We have returned to the normal monetary policy from the conventional monetary policy, but the normality is not the normal state of the past, but the new normal, so this is not the same as the traditional old normal. On the one hand, we have liberalized interest rates, and now we have reformed the financial market. As Li Daokui introduced, we are gradually liberalized interest rates. That is, China's monetary policy is more and more just to be quantitative easing. It is not enough to rely on a series of mechanisms, including price mechanism and quantitative policy tools. So this is some conventional monetary policy method to implement monetary policy.

As for our next steps, we seem to be very careful in tracking and tracking the global economic trend, including the fact that we see inflation declining, commodity prices declining and China's economic growth slowing down. China's inflation is also declining. Therefore, we must be cautious and vigilant to see whether the inflation trend will continue. Will this deflation occur or not?