Financial recovery has its costs

China's Central Bank Governor Zhou Xiaochuan's response to criticisms leveled at China for printing more money, known as M2, in the wake of the 2008 fiscal crisis, is reasonable, says an article of the 21st Century Business Herald. Excerpts:

Zhou says China's response to the 2008 financial crisis was correct, but the timing of the withdrawal of the measures might have been a little late. However, at the time, the situation was quite complicated and it is always easier to be wise in retrospect.

There is an important context for China's monetary policies at that time that should not be ignored. China is in a period of transformation. Its monetization process is accelerating and its financial industries are developing fast. Some commodities, such as land and houses, have been transformed from non-commercial items in a planned economy, to valuable assets in a market economy. To facilitate this process, China needs more monetary support.

China's total deposit rate is about 50 percent of GDP and household deposit ratios exceed 30 percent. Because indirect financing remains the main financing channel for the real economy, the proportion of M2 in the GDP must be comparatively high.

There are always two sides of macro-economic policies, positive and negative, financial and monetary policies are no exception. Evaluating the effectiveness of the stimulation package polices should be done against a broader backdrop and with a long-term perspective.

The financial crisis had its costs — so does the economic recovery.