MNI POLICY: China Should Keep Conventional Policies: PBOC's Ma

By Wanxia Lin

     BEIJING (MNI) - China's economy has shown clear signs of recovery in the

second quarter and further accommodative measures can be taken under the current

fiscal and financial framework without adopting drastic easing that incurs

long-term financial risks, Ma Jun, a member of the People's Bank of China's

monetary policy committee, wrote in Financial News on Sunday.

     China can further lower the reserve requirement ratio, or provide targeted

liquidity to some banks supporting thier new treasury bond purchases, said Ma. 

     Ma dismissed suggestions for the so-called "monetizing fiscal deficits."

Such measures, under the Modern Monetary Theory, only applies to economies

already with zero interest rate or when normal easing is no longer effective, he

said.

     China has room to apply conventional tools, Ma said. Even for certain

government "hijacked by populism," overuse of MMT can lead to unlimited debt

expansion, debt crisis or monetary crisis, Ma wrote without mentioning the name

of the country. 

     Ma pointed out that "monetizing fiscal deficit" posts following risks:

- inflation;

- asset bubbles, especially real estate;

- currency depreciation;

- excessive fiscal debt, causing decline of the sovereign credit rating;

- taking resources from private sectors, lead to falling productivity and slower

growth.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MT$$$$]