MNI BRIEF: China Needs Expansionary Fiscal and Monetary Moves

China needs to take bold expansionary fiscal and monetary measures to boost investment and consumption, a former PBOC MPC member said during 2023 Bund Summit on Friday, calling on the People’s Bank of China's yuan exchange rate policy to remain flexible.

Yu Yongding, now senior fellow at Chinese Academy of Social Science, said China’s macro policymakers should create an easing environment for spending of business and household sectors to prevent a possible balance sheet recession.

China’s insistence in controlling its government budget/GDP ratio below 3% and government bond/GDP ratio lower than 6% has impacted the economic recovery, said Yu. “In this term, the Chinese government is too cautious," he said.

With a large trade surplus, the yuan will not likely suffer significant depreciation even though the interest-rate spread between China and the U.S has triggered capital outflow at present, Yu said, noting China should properly deal with real-estate developer, and local government debt to ensure economic recovery.