China’s central bank and finance ministry recently engaged in a hot debate over the role of fiscal policy amid the nation’s economic restructuring.
The debate was triggered by an article written by Xu Zhong, the head of research at the People’s Bank of China (PBOC), criticizing the fiscal policy as not being aggressive enough to stimulate economic growth.
An unidentified Ministry of Finance official countered with an article on Caixin.
In response to Xu’s criticism that the Ministry of Finance has done little to prevent local governments from boosting their debt pile, the official noted that “financial institutions have played a conniving role in the chaos of local government debt”. In other words, the official is saying the PBOC has not properly carried out its role of regulating financial institutions.
Public spats between China’s policymakers are rare, and it seems the top financial policymakers are trying to blame each other as the nation is facing challenges in rebalancing the economy.
The truth is, both departments have their own concerns while trying to strike a balance between deleveraging and economic stabilization.
The central bank is fearful of further inflating the debt bubble and is therefore hesitant to relax the monetary policy to stabilize growth.
On the other hand, the finance ministry is trying to avoid expanding the government deficit and is therefore not willing to cut taxes or lower public service charges aggressively.
The full article appeared in the Hong Kong Economic Journal on July 20
Translation by Julie Zhu
[Chinese version 中文版]
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