China's reform targets policy mismatch

Better coordination sought between fiscal and monetary authorities

The Chinese government is working on a better coordination mechanism between fiscal and monetary authorities to pave the way for further economic reform, a senior government consultant said on Thursday.

Li Yang, deputy head of the Chinese Academy of Social Sciences, the country's top think tank, said a regular meeting between fiscal and monetary officials, which was held in the 1990s but later abandoned for more than a decade, will restart very soon.

The headquarters of the People's Bank of China in Beijing. Top officials of the central bank and the Ministry of Finance may soon resume holding regular meetings to better coordinate economic policy. Guo Tai / For China Daily

Such officials are mainly from the Ministry of Finance and the People's Bank of China, the country's central bank.

"The mismatch between fiscal and monetary policies is certainly an aspect that the government should attach more importance to if it wants to improve the efficiency of the policies," Li said.

"Fast economic growth in the last decade could have covered up some problems, but slower growth in the future will see the contradictions loom large."

He said capital tension next year will lead to more disputes and friction between the two sectors.

"We will see a substantial increase in the fiscal deficit due to single-digit growth in fiscal revenue," Li said. "And the credit available to lend will still be very scarce, given a surge in credit demand."

Li said the roles of the two central government departments need to be defined more clearly, especially on government bond issuance and the management of the account in which tax revenue and other public funds are deposited, as well as foreign exchange reserves.

"The Ministry of Finance's control over the national treasury sometimes works as another monetary policy system, as it allocates capital to different institutions," he said

"Leaving total foreign reserves to the central bank has seen monetary policies held hostage to uncontrollable capital flows."

 

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