BEIJING (Reuters) - China cannot rely on monetary policy easing to resolve its structural problems, the central bank’s chief researcher said in an opinion column on Friday.
Growth in the world’s second-largest economy is at risk of slowing as authorities try to tame rapid domestic credit growth at a time when a full-blown trade war with the United States could hurt the economic outlook.
To cushion the economy, the central bank said on Sunday it would cut the amount of cash that some banks must hold as reserves, releasing $108 billion in liquidity, to accelerate the pace of debt-for-equity swaps and spur lending to smaller firms.
Xu Zhong said an excessive reliance on monetary policy would be masking credit risks with liquidity and hiding the low return of investments, according to his column published by financial magazine Caixin. He stressed that would further exacerbate structural problems.
“We must let ‘good leverage’ stay and get rid of the bad ones,” he said. “The main purpose of monetary policy is still to maintain a neutral and stable currency environment.”
Fiscal policy should play a bigger role in China’s deleveraging process, Xu said, adding that the country should roll out a property tax to reduce local governments’ reliance on land sales for revenue.
Reporting by Beijing Monitoring Desk and Yawen Chen; Editing by Richard Borsuk and Subhranshu Sahu