Reports have circulated about the friction between China’s president and its central bank governor, Yi Gang, who has allegedly made some policy decisions —particularly those surrounding their deleveraging campaign in response to the real estate crisis triggered by Evergrande— that may be interpreted by Beijing as moving towards political independence.
While the news of anti-corruption inspectors descending on the PBoC indicates the party’s desire to retain ultimate control over its central bank, some analysts see this “crossing of swords” as a sign of potential evolving in China’s policy making: a central bank, insulated from political pressure, they believe, would provide a healthy counterbalance, citing Japan’s government’s in tandem relationship with its central bank as it cause of its stalled economy (1).
Some economists are anticipating a reacceleration of China’s GDP growth in 2022 following the downturn that 2021’s regulatory tightening induced. With current GDP slowing to 3.3% in Q4, monetary and fiscal policies have begun to ease with new allowances for credit allocations, in sectors such as renewable energy and new technology, as well as lifting restrictions on the housing market in some areas, creating a bullish environment for the markets (2).
For the first time since April 2020 China has cut its one-year loan prime rate by 5 basis points. This adaptation to its credit expansion policy demonstrates China’s ability to be flexible with their policies in light of economic slowdown, and indicates the strength of its interest in boosting economic growth for the coming year (3).
China cut rates more conservatively than its western peers during the height of the pandemic, which now affords it more wiggle room for easing to stimulate its economy. While Omicron poses a temporary caveat due to China’s zero-covid policy, Chinese markets continue to sport an attractive value to price ratio for mid-term investment.
References