THE FUTURE OF UNCONVENTIONAL MONETARY POLICY –WHAT WILL HAPPEN NEXT?
Ben Shenglin, ExecutiveDirector, International Monetary Institute, Renmin University of China
First of all, let me thank David Marsh for inviting me and IMI to attend this conference. This week I am inEurope on a non-commercial RMB Internationalization roadshow.
The theme of this session is about“unconventional monetary policy”, which to me sounds a bit unconventional in the first place. For Chinese, we do not know what the conventional monetary policy is all about, as we have always been deviating from the western conventions, not just the monetary policy side, but also the path of economic development. So we have always been considered “unconventional”. For example, what Stefan was talking about earlier, “forward guidance”, we have had “window guidance” all along, we have also had “targeted easing” instead of“quantitative easing” etc.
As the Emerging Market representative, I will respectfully follow the instructions of the conference, talking about the“centers of strength and points of vulnerability”.
Let me start with vulnerability first. I see two important points of “vulnerability”: first one is a financial one, that is the financial risk and the risk of banking sector crisis. The listed Chinese banks are traded at PE ratio of about/less than 5 and below their book value,with a few in significant discount to their book value. The last time we had such valuation levels were about 10-12 years ago, when the Chinese banks were considered “technically bankrupt” . This is something we must be vigilant about.The second point of vulnerability is (geo)political. These points of vulnerability are manageable, but the risks are not going away any time soon.
Let me now move to the positive side of mytalk: the “center of strength”. I was listening to the previous session on “the stabilization of Eurozone”. I felt and sympathize the frustrations many of you as central bankers in Europe have expressed. The debate and complaint about how Euro as a currency/financial union can survive without the support of fiscal and political union in Europe, which you do not have. But these are exactly what we have in China: the political, fiscal as well as monetary union. We have the political visibility and stability: The central government has recentralized its power, making it easier for the policies to be implemented across the country. In the meantime, the economic liberalism is gaining momentum, with reform back as the top agenda for the government. This will unleash the entrepreneurial spirit across the country and spur the next round of economic growth in China. My new home province Zhejiang may serve as a good reference for the future of China going forward.With a population of 50 million people, Zhejiang is a medium-sized province in China. But we have 6.4 million Zhejiang natives living outside Zhejiang,including about 1.5 million residing outside China. Zhejiang’s GNP is about three times of GDP. Most, if not all, of these 6.4 million people are owners of companies one way or another, large or small. In addition to nearly 1.2 million registered companies in Zhejiang and about 2.8 million self-employed who are doing their own businesses one way or another,we are talking about nearly 10million entrepreneurs, with the largestbeing Alibaba, Geely, Wahaha etc.
My concluding remark is that the political(re) centralization in China in combination with the unfolding economic liberalism will unlock the potential and power of Chinese entrepreneurship,leading the nation to the next round of economic growth.
History has proven this in the past and I am confident that it will prove again this time.
Introduction：This passage was based on the talk as a panelist in a conference held in Frankfurt in Oct 2014, which was organized by Deutsch Bundesbank & OMFIF (Official Monetary Financial Institutions Forum) .