Analysis: China sets neutral course for monetary policy

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Europe

By CGTN's Martina Fuchs

As widely expected by the market, China's central bank is set to continue its "prudent and neutral" policy, with an economic growth target cut to around 6.5 percent.

China’s Two Sessions – in full swing now – have triggered a lot of number crunching, and economists are busy revising their macro forecasts.

"Big changes in inflation and monetary policies are happening in the world, and there's heat coming out of China's real-estate market, so Chinese monetary policy will tighten in the medium term, along with some of the world’s other major economies, like the US," said Joseph Lake, the director of global forecasting at The Economist Intelligence Unit.‍

The three-time rate hike by the US Federal Reserve this year will strengthen the US dollar against the RMB, while China is still working to stick to its managed floating exchange rate framework and keep the yuan currency basically stable.

Federal Reserve Chair Janet Yellen (L) hinted at rate hike coming soon during a luncheon at the Executives Club of Chicago on March 3, 2017. /CFP Photo

The yuan shed about 6.5 percent of its value against the dollar last year. It then strengthened in early January and has been trading in a flat range.

Ralph Lutes, executive director and general manager of Teck China, expects China’s ongoing monetary policies to continue, as they are proved effective in promoting stability and certainty in financial markets.

CFP Photo

With the rise of protectionism in the US and Europe, and financial volatility around the world, businesses in China have started to prepare for a paradigm shift.

"During the Government Work Report, Premier Li Keqiang has re-emphasized using technology to create a very favorable environment for innovation and entrepreneurship and seek a new driving force for our economy," said Cliff Wu, president of Sas Greater China.

Over the next couple of months, the top challenges for China's policymakers will be to cool explosive growth in debt and tackle shadow banking activity.

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