Monetary and financial issues

Economic Survey of China 2010: Further monetary policy framework reform

 

Contents | Executive summary | How to obtain this publication 

Additional information | Back to main page | 

 

The following OECD assessment and recommendations summarise chapter 2 of the Economic Survey of China published on 2 February 2010.

 

Contents

 

Further modernisation of the monetary policy framework is warranted

China’s monetary policy framework has gradually moved away from a planned administrative system to a more market-based regime, with money growth as the main intermediate target. As part of this transition, some interest rates have been liberalised, making them more responsive to market signals, and the tools of monetary policy have been modernised. The central bank now has considerable control over short-term interest rates in the interbank market and more influence over longer-term rates through the term structure. Going forward, the central bank’s operational framework needs to place less emphasis on quantity-based liquidity controls and more on interest rate changes. Its benchmark commercial bank lending and deposit rates are losing relevance in the conduct of monetary policy and ought to be progressively phased out. The banking sector has also undergone significant reform and the economy has become far more responsive to market-based policy measures: investment at the firm level is more sensitive to interest rate movements and changes in aggregate demand pressures exert a stronger influence on inflation. Hence, the transmission mechanism has become more effective in China and monetary policy can play a greater role in fostering stability. However, the current exchange rate regime limits the effectiveness of this channel by preventing the value of the currency from adjusting to offset macro shocks. Allowing greater exchange rate flexibility and putting more weight on an inflation objective – while keeping a vigilant eye on asset prices – would offer the central bank more scope to tailor monetary policy to domestic macroeconomic conditions and reduce the costs and risks of sterilising foreign reserve inflows. Besides, real exchange rate appreciation is to be expected in any event over the medium run in an economy that is catching up rapidly.

 

Nominal and real exchange rates and foreign exchange reserves

 

Source: CEIC, OECD and BIS. 

 

How to obtain this publication

 

The complete edition of the Economic Survey of China is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. 

 

Additional information

For further information please contact the China Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by Richard Herd, Samuel Hill and Yu-Wei Hu under the supervision of Vincent Koen. Research assistance was provided by Thomas Chalaux.

 

 

 

Countries list

  • Afghanistan
  • Albania
  • Algeria
  • Andorra
  • Angola
  • Anguilla
  • Antigua and Barbuda
  • Argentina
  • Armenia
  • Aruba
  • Australia
  • Austria
  • Azerbaijan
  • Bahamas
  • Bahrain
  • Bangladesh
  • Barbados
  • Belarus
  • Belgium
  • Belize
  • Benin
  • Bermuda
  • Bhutan
  • Bolivia
  • Bosnia and Herzegovina
  • Botswana
  • Brazil
  • Brunei Darussalam
  • Bulgaria
  • Burkina Faso
  • Burundi
  • Cambodia
  • Cameroon
  • Canada
  • Cape Verde
  • Cayman Islands
  • Central African Republic
  • Chad
  • Chile
  • China (People’s Republic of)
  • Chinese Taipei
  • Colombia
  • Comoros
  • Congo
  • Cook Islands
  • Costa Rica
  • Croatia
  • Cuba
  • Cyprus
  • Czech Republic
  • Côte d'Ivoire
  • Democratic People's Republic of Korea
  • Democratic Republic of the Congo
  • Denmark
  • Djibouti
  • Dominica
  • Dominican Republic
  • Ecuador
  • Egypt
  • El Salvador
  • Equatorial Guinea
  • Eritrea
  • Estonia
  • Ethiopia
  • European Union
  • Faeroe Islands
  • Fiji
  • Finland
  • Former Yugoslav Republic of Macedonia (FYROM)
  • France
  • French Guiana
  • Gabon
  • Gambia
  • Georgia
  • Germany
  • Ghana
  • Gibraltar
  • Greece
  • Greenland
  • Grenada
  • Guatemala
  • Guernsey
  • Guinea
  • Guinea-Bissau
  • Guyana
  • Haiti
  • Honduras
  • Hong Kong, China
  • Hungary
  • Iceland
  • India
  • Indonesia
  • Iraq
  • Ireland
  • Islamic Republic of Iran
  • Isle of Man
  • Israel
  • Italy
  • Jamaica
  • Japan
  • Jersey
  • Jordan
  • Kazakhstan
  • Kenya
  • Kiribati
  • Korea
  • Kuwait
  • Kyrgyzstan
  • Lao People's Democratic Republic
  • Latvia
  • Lebanon
  • Lesotho
  • Liberia
  • Libya
  • Liechtenstein
  • Lithuania
  • Luxembourg
  • Macao (China)
  • Madagascar
  • Malawi
  • Malaysia
  • Maldives
  • Mali
  • Malta
  • Marshall Islands
  • Mauritania
  • Mauritius
  • Mayotte
  • Mexico
  • Micronesia (Federated States of)
  • Moldova
  • Monaco
  • Mongolia
  • Montenegro
  • Montserrat
  • Morocco
  • Mozambique
  • Myanmar
  • Namibia
  • Nauru
  • Nepal
  • Netherlands
  • Netherlands Antilles
  • New Zealand
  • Nicaragua
  • Niger
  • Nigeria
  • Niue
  • Norway
  • Oman
  • Pakistan
  • Palau
  • Palestinian Administered Areas
  • Panama
  • Papua New Guinea
  • Paraguay
  • Peru
  • Philippines
  • Poland
  • Portugal
  • Puerto Rico
  • Qatar
  • Romania
  • Russian Federation
  • Rwanda
  • Saint Helena
  • Saint Kitts and Nevis
  • Saint Lucia
  • Saint Vincent and the Grenadines
  • Samoa
  • San Marino
  • Sao Tome and Principe
  • Saudi Arabia
  • Senegal
  • Serbia
  • Serbia and Montenegro (pre-June 2006)
  • Seychelles
  • Sierra Leone
  • Singapore
  • Slovak Republic
  • Slovenia
  • Solomon Islands
  • Somalia
  • South Africa
  • South Sudan
  • Spain
  • Sri Lanka
  • Sudan
  • Suriname
  • Swaziland
  • Sweden
  • Switzerland
  • Syrian Arab Republic
  • Tajikistan
  • Tanzania
  • Thailand
  • Timor-Leste
  • Togo
  • Tokelau
  • Tonga
  • Trinidad and Tobago
  • Tunisia
  • Turkey
  • Turkmenistan
  • Turks and Caicos Islands
  • Tuvalu
  • Uganda
  • Ukraine
  • United Arab Emirates
  • United Kingdom
  • United States
  • United States Virgin Islands
  • Uruguay
  • Uzbekistan
  • Vanuatu
  • Venezuela
  • Vietnam
  • Virgin Islands (UK)
  • Wallis and Futuna Islands
  • Western Sahara
  • Yemen
  • Zambia
  • Zimbabwe