Will the Chinese Government Consider a Tighter Monetary Policy?
The Chinese government may be considering a modest tightening of monetary policy according to an official at the People’s Bank of China, Reuters reports. This comes as the Chinese central bank has put the brakes on liquidity operations for the second day in a row today.
The People’s Bank of China had begun measures to increase liquidity in the Chinese economy after growth rates came in at a modest 7.5 percent for the first two quarters of this year. Their efforts have certainly paid dividends with economic growth rising to 7.8 percent in the third quarter and on pace to hit 7.6 or 7.7 percent for the year 2013. This would exceed Beijing’s official goal, which is to grow at a rate of at least 7.5 percent.
However, the liquidity measures have raised concerns because they may be masking economic stagnancy in the country through unsustainable means. Not only will the government have to lay off such actions as the economy picks up, but initiatives during the past few years have caused the government of China — both federal and municipal — to increase debt levels on a massive scale. Exactly how much the Chinese government owes will be revealed in a report due to be released later this year.