Su Ning: Continue to strengthen macroeconomic management and push
forward balanced economic growth
Speech by Mr Su Ning, Deputy Governor of the People's Bank of China, at the Forum on Balanced
Growth, Beijing,23 November 2006.
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Ladies and gentlemen:
It is a pleasure for me to attend the Forum on Balanced Growth. In China's economic development, it
is an important objective to push forward balanced economic growth and advance building of a
harmonious society.
In recent years, under the leadership of the State Council, the PBC has implemented a sound
monetary policy by adopting market-based measures to conduct macroeconomic management in
coordination with other policies and has successfully restrained deflation and a new round of inflation,
significantly improved the stability of economic and financial performance and contributed to a
sustained, rapid, healthy and balanced development of national economy.
First, more importance has been attached to the forward-looking and scientific nature of monetary
policy. To address emerging problems in economic performance, policy stance and strength was
adjusted in a timely manner, and sound monetary policy was adopted to effectively prevent inflation
and economic fluctuations.
Second, a market-based indirect management system has been gradually built. The framework under
which the central bank adjusts base money to manage money and credit aggregate has been
increasingly improved. The coordinated use of open market operations and other monetary policy
instruments such as reserve requirement ratio hike, central bank lending withdrawal and rediscount
has been increasingly strengthened. Market-based interest rate reform has steadily advanced,
resulting in an increasingly important role of interest rate in monetary policy transmission and
resources allocation. A managed floating exchange rate regime based on market supply and demand
with reference to a basket of currencies was adopted. The RMB exchange rate flexibility was
strengthened, and market supply and demand played a role in exchange rate formation. Financial
market expanded at a stable pace. The fundamental role of market in financial resources allocation
was enhanced and monetary policy transmission mechanism was evidently improved in which
monetary policy is transmitted from central bank to financial market, then to financial institutions, and
finally has an impact on the real economy.
Third, greater emphasis has been laid on the coordination and cooperation between monetary policy
and other economic policies. To deal with overheating in certain investment sectors and rising
inflationary pressures since 2003, a combination of sound monetary policy and sound fiscal policy has
effectively contained aggregate demand expansion. Meanwhile, cooperation with regulatory policy and
industrial policy has been enhanced to encourage banks to build long-term risk management
mechanism, and to increase the soundness of financial system,with a view to further improving
industrial structure, controlling credit risks, supporting consumption expansion and increasing
employment.
Since the beginning of 2006, the PBC has continued to implement a sound monetary policy by
intensifying liquidity management in banking system and policy coordination between local and foreign
currencies. A mix of monetary policy instruments was employed to optimize credit structure,
appropriately adjust money and credit aggregate, producing an evident effect in macroeconomic
management. At present, outstanding problems and imbalances in economic performance have
eased, as featured in the slowdown of slightly fast momentum of economic development, decelerated
growth of investment and industrial production. Excessive expansion of money and credit has been
initially contained. The broad money M2 decelerated gradually after May. At end-September, M2 grew
by 16.8 percent year on year, down 1.6 percentage points and 0.9 percentage points from that at
end2005 and the same period last year respectively, reaching the bottom of the year. The RMB exchange
rate experienced both upward and downward movements, its flexibility still gradually strengthened. At
end-September, the RMB against US dollar exchange rate closed at 7.9041 yuan, representing a
cumulative appreciation of 4.65 percent after the exchange rate regime reform. In the third quarter,
GDP increased by 10.4 percent year on year, decelerated by 0.9 percentage points from the growth
rate of 11.3 percent in the second quarter. The price level remained basically stable in the second
quarter, and the Consumer Price Index (CPI) generally rose by 1.3 percent.
At present, the national economy is developing in the direction anticipated by macroeconomic
management. However, problems in economic performance can not be neglected, especially
longstanding structural imbalances such as excess savings rate, lower-than-desired consumption rate,
which are unlikely to be solved overnight.
First, economic growth is overly depended on investment and export, and domestic consumption
demand is relatively inadequate. The share of final consumption in GDP dropped from 62 percent in
the 1980s to 52.1 percent in 2005, and household consumption rate declined from 48.8 percent in
1991 to 38.2 percent in 2005, both hitting a record low. The savings rate climbed from 38.9 percent in
2001 to 47.9 percent in 2005, gaining 9 percentage points over the past five years. A relatively high
savings rate as a product of the lower-than-desired consumption rate is transformed into high
investment rate, which has resulted in an investment-driven economic growth, and made extensive
economic growth pattern hard to change. Correspondingly, widening BOP imbalances give rise to
excess domestic liquidity and stimulate excess investment and surging asset prices. Potential
pressure on price stability has become a big challenge for macroeconomic management.
The balanced development of national economy is the prerequisite for rapid development of national
economy, and the main content of sustainable and healthy economic growth as well as objective
requirement for harmonious social and economic development. In the period ahead, the PBC will
continue to implement a sound monetary policy, focusing on both short-term liquidity management and
medium and long-term objectives to further intensify economic structural adjustment and promote
balanced growth of economy.
First, the relationship between domestic and external demand will be appropriately dealt with by
further expanding domestic consumption demand and reducing reliance on external demand. The
coordination among the macroeconomic policies such as fiscal policy, monetary policy, foreign trade
policy, industrial policy and investment policy will be improved by means of expanding consumption
and domestic demand, lowering savings rate, boosting import and opening up market, as so to
advance economic structural adjustment and promote BOP equilibrium.
Second, monetary policy transmission mechanism and environment will be improved to enhance the
effectiveness of monetary policy. Efforts will be made to promote the evolution and improvement of
financial market, deepen the reform of financial enterprises and state-owned enterprises. Government
function in economic management should be further transformed. Indirect macroeconomic
management mechanism should be improved to safeguard and promote sound performance of
financial system.
Third, market-based interest rate reform will be progressed steadily. Efforts will be made to improve an
interest rate formation mechanism based on market supply and demand and adjusted by central bank
through monetary policy instruments. Market expectation shall be effectively utilized to enhance
transparency and credibility of monetary policy.
Fourth, the coordination and cooperation between monetary policy and other economic policies should
be strengthened. In line with division of labor, monetary policy and financial supervision authorities will
enhance their coordination in line with the long-term development plan for financial market system
construction to promote an all-round, balanced and sustainable development of financial industry. The
coordination and cooperation between monetary policy and industrial policy will also be improved.
According to national economic development plan, financial institutions should be guided to earnestly
implement the requirement of national industrial policy by further improving credit structure and
upgrading financial service.
Fifth, the share of direct financing will be further increased. Bond market will be vigorously expanded
by encouraging bond products innovation and encouraging institutional investor development.
Cultivation of transaction entities and intermediary institutions will be intensified, and fundamental
institutional building of bond market will be expedited to further push forward the balanced
development of financial market.
Ladies and gentlemen, on December 11, 2006, the transitional period under China's WTO
commitment will expire, and China's economic reform and development will definitely enter into a new
historical era. As the central bank, the PBC will further strengthen and improve macroeconomic
management, actively promote financial reform and opening up, in an effort to create a favorable
macroeconomic environment for sustained, stable and healthy development of national economy.
Thank you.
BIS Review 119/2006