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Macro-Economic Policy Framework with Chinese Characteristics

Aug 05-2024   



 

When broadly defined, ‘macro-economic governance system” encompasses three objectives, namely boosting economic growth momentum, safeguarding macro-economic stability and promoting social justice. In a media commentary, Prof. Huang Yiping, Dean of the NSD, delved into macro-economic policy in its narrow sense, which mainly applies counter-cyclical monetary and fiscal policy tools to achieve an equilibrium between total demand and total supply, bolster price stability and full employment, and spur rational labor income increase and corporate profit growth.

 

He explained that specifically adding ‘with Chinese characteristics’ to his sharing was made necessary by some special aspects of the macro-economic policy framework. These aspects have come about largely because certain structural or systemic traits have impacted on the macro-economic policy’s choice of tools, as well as policy transmission and effect. Such characteristics can still be analyzed within common theoretical frameworks, but certain changes might have to be made or certain qualifications be attached.

 

After reviewing the formation and evolution of macro-economic policy, Prof. Huang summed up a few features of China’s macro-economic policy framework, including the existence of non-price, non-market policy tools, the distinctive roles of the Ministry of Finance and the central bank, and the shifting complement between the central government’s decision-making and the local governments’ action-taking.

 

He then outlined newly-arisen challenges for current macro-economic policy against the backdrop that the traditional macro-control framework has underwent a historical turn as public finance in many local areas have fallen into disarrays since the pandemic. Macro-economic policy, according to Prof. Huang, has been too mild and has yet to reverse the economic slump. As macro-economic policy carries insufficient punch, partly due to local governments’ decreasing capacity in magnifying the effect of macro-economic policy, it has become difficult to change market participants’ expectation and behavior. Another challenge lies in walking the fine line between low-growth risk and low-inflation risk. Yet another one is the risk of withering balance sheet.

 

By weighing two popular views in policy discussions, Prof. Huang argued that macro-economic policy should return to its positioning of managing economic cycles. He proposed some policy adjustments to improve the effect of macro-control. For one, emphasis should be laid on guiding market expectation. He particularly highlighted the role of using ‘narrative economics’ to channel more optimism into market entities. Secondly, the central government and the central bank should take on the main responsibilities for macro-economic control. Specifically, given local governments’ diminishing role, the central government has to ensure large enough fiscal outlays and their timely and concrete implementation. Thirdly, counter-cyclical control, to achieve expected results, should have precedence over cross-cyclical one. Further structural reform is needed to strengthen market discipline and eventually smoothen both the rollout and termination of macro-economic policy. The fourth suggestion is to reinforce the coordination among fiscal, monetary and industrial policy.

 

As for short term economic development, Prof. Huang proposed according the same weight to achieving moderate inflation and pursuing medium-speed growth, stepping up the punch of macro-economic policy and particularly the implementation of budgetary plans, as well as unleashing the power of sovereign credit to fix short planks and reduce balance sheet risk.

Macro-Economic Policy Framework with Chinese Characteristics

Aug 05-2024   



 

When broadly defined, ‘macro-economic governance system” encompasses three objectives, namely boosting economic growth momentum, safeguarding macro-economic stability and promoting social justice. In a media commentary, Prof. Huang Yiping, Dean of the NSD, delved into macro-economic policy in its narrow sense, which mainly applies counter-cyclical monetary and fiscal policy tools to achieve an equilibrium between total demand and total supply, bolster price stability and full employment, and spur rational labor income increase and corporate profit growth.

 

He explained that specifically adding ‘with Chinese characteristics’ to his sharing was made necessary by some special aspects of the macro-economic policy framework. These aspects have come about largely because certain structural or systemic traits have impacted on the macro-economic policy’s choice of tools, as well as policy transmission and effect. Such characteristics can still be analyzed within common theoretical frameworks, but certain changes might have to be made or certain qualifications be attached.

 

After reviewing the formation and evolution of macro-economic policy, Prof. Huang summed up a few features of China’s macro-economic policy framework, including the existence of non-price, non-market policy tools, the distinctive roles of the Ministry of Finance and the central bank, and the shifting complement between the central government’s decision-making and the local governments’ action-taking.

 

He then outlined newly-arisen challenges for current macro-economic policy against the backdrop that the traditional macro-control framework has underwent a historical turn as public finance in many local areas have fallen into disarrays since the pandemic. Macro-economic policy, according to Prof. Huang, has been too mild and has yet to reverse the economic slump. As macro-economic policy carries insufficient punch, partly due to local governments’ decreasing capacity in magnifying the effect of macro-economic policy, it has become difficult to change market participants’ expectation and behavior. Another challenge lies in walking the fine line between low-growth risk and low-inflation risk. Yet another one is the risk of withering balance sheet.

 

By weighing two popular views in policy discussions, Prof. Huang argued that macro-economic policy should return to its positioning of managing economic cycles. He proposed some policy adjustments to improve the effect of macro-control. For one, emphasis should be laid on guiding market expectation. He particularly highlighted the role of using ‘narrative economics’ to channel more optimism into market entities. Secondly, the central government and the central bank should take on the main responsibilities for macro-economic control. Specifically, given local governments’ diminishing role, the central government has to ensure large enough fiscal outlays and their timely and concrete implementation. Thirdly, counter-cyclical control, to achieve expected results, should have precedence over cross-cyclical one. Further structural reform is needed to strengthen market discipline and eventually smoothen both the rollout and termination of macro-economic policy. The fourth suggestion is to reinforce the coordination among fiscal, monetary and industrial policy.

 

As for short term economic development, Prof. Huang proposed according the same weight to achieving moderate inflation and pursuing medium-speed growth, stepping up the punch of macro-economic policy and particularly the implementation of budgetary plans, as well as unleashing the power of sovereign credit to fix short planks and reduce balance sheet risk.