Yi Gang served as governor of the People’s Bank of China from 2018 to 2023. He is pictured here speaking at the Peterson Institute for International Economics in Washington, DC, USA, on Saturday, April 15, 2023.
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SHANGHAI – Chinese policymakers should focus on boosting domestic demand, Yi Gang, former head of the People’s Bank of China, said at the Bund Summit in Shanghai on Friday.
“I think they should now focus on fighting deflationary pressures,” Yi said, adding that “the key word is how can we improve domestic demand, how can we successfully deal with the real estate market situation and the local economy? the public debt problem and affect society’s confidence.”
“Right now, proactive fiscal policy and accommodative monetary policy are important,” he said.
In contrast to high inflation in the US and Europe, Chinese consumer prices fell in 2023 and have risen only marginally so far this year as domestic demand remains subdued.
The latest CPI, to be published on Monday, is expected to rise from 0.5% annual growth in July to 0.70% in August, according to economists polled by Reuters. That would still only be the fastest since February’s 0.7% CPI rise.
Yi said he expected the consumer price index to “reach above zero by the end of the year,” while the producer price index was likely to reach zero, following negative figures in recent months.
The core CPI, which excludes food and energy prices, rose 0.4% in July from a year ago, up from 0.6% in June and May.
Yi served as governor of the PBoC from March 2018 to July 2023. Pan Gongsheng is the current head of the Chinese central bank.
Zou Lan, director of the PBoC’s monetary policy department, told reporters on Thursday that the central bank still has room to cut reserve requirements, which determine the amount of cash banks must keep on hand. It is just one of several monetary policy tools of the PBoC.
In July, Chinese policymakers announced strong support for a trade-off policy to boost consumption. Although central and local authorities have also taken steps to strengthen the huge real estate market, sales and investments in new properties have still declined.
“The challenge for Chinese policymakers is to manage the housing crisis and ensure there is sufficient domestic demand to maintain high levels of economic growth,” Jeffrey J. Schott, senior fellow at the Peterson Institute for International Economics, told reporters Thursday. to reporters. .
“That is so important for the Chinese economy and for bringing more and more people to a higher standard of living,” he said.
Contrast with Japan
Chinese consumption has remained subdued since the pandemic. Retail sales fell in the major cities of Beijing and Shanghai by 3.8% And by 6.1%respectively in July compared to a year ago, official data showed.
Important factors behind low consumer confidence are uncertainty about future income and the welfare impact of the slump in the real estate market.
“Central banks should avoid prolonged deflation, even if mild, because it could affect wage determination,” Haruhiko Kuroda, former head of the Bank of Japan, said at the same panel session as Yi.
Kuroda pointed out that the current deflationary situation in China has been much shorter than what Japan faced. But he said 15 years of deflation in Japan had kept wages from rising significantly until the last two years.
— CNBC’s Sonia Heng contributed to this report.