Monetary policies must serve reform and quality development

AFTER THE US FEDERAL RESERVE cut its interest rate on Thursday, many central banks have followed suit. The central banks of Europe and Japan are also embracing looser monetary policies. The 21st Century Business Herald comments:

China has no reason to keep step with those countries and regions in monetary policy, as its economy is in a different situation from those of developed economies, where low inflation and precarious growth are the main concerns.

China should draw lessons from its experience in the 2008 financial crisis, when the United States was in a liquidity crisis, while it faced overcapacity caused by stimulus packages, easy-money policies and weak demand.

Although easy-money policies might immediately drive up growth, they would run counter to the country's efforts to improve the quality of its supply side, avoid new overcapacity, control local government debts and deleverage the market to nip systemic financial risks in the bud.

Moves that in the long-run are aimed at improving the quality of growth, at the cost of the rate of growth.

China does not lack capital. Instead, large amounts of idle capital are desperately sniffing around looking for investment opportunities.

Before it makes its industries more competitive to attract investment, and before removing the institutional barriers that block the flow of capital in worthwhile directions, China has no reasons to flood the market with money, as that will only further push up the leverage rate and housing prices and increase the financial risks.

Therefore, China's monetary policies must in the first place serve its own reform and development agenda, and policymakers should demonstrate composure in analyzing China's actual needs and refrain from being misled by other economies. A prudent monetary policy is still needed.

The focus of the market, if not speculators, is to prompt the government to accelerate reform of the financial system, to make the system more efficient in providing for the needs of the real economy, and to be more vigilant and resistant to potential risks.

At present, China's economic situation is better than that of the US. Most of China's debt is controllable domestic debt and it is striving to promote reforms and create space for long-term sustainable development. In an era of rapid global risks, as long as China persists in stability and reform and manages its own affairs, it will become the world's "highland of confidence".