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China needs to take swift action to reverse deflationary pressures, former central bank governor Yi Gang has said, in a rare acknowledgment of what economists increasingly see as one of the most pressing concerns for the world’s second-biggest economy.
Speaking at the Bund Summit, an influential annual economic conference in Shanghai on Friday, the respected former governor of the People’s Bank of China called on policymakers to loosen monetary policy and support the real economy, Chinese state-backed media outlet Caijing reported.
Yi, who was educated in the US, stepped down last year after five years at the helm of the PBoC. He said on Friday that the aim should be to bring the GDP deflator — the broadest measure of prices in the economy — back into positive territory, effectively dispelling deflation.
China’s economy has suffered from weak domestic demand in the wake of the pandemic, with a collapse in the property market undermining household confidence.
The low demand — and excess production in some sectors — has spurred fierce competition that has in turn hit prices, undercutting corporate profits. Government crackdowns on various sectors have further damaged investor sentiment.
The deflationary pressure is reflected in the economy’s nominal GDP, which grew 4.0 per cent year on year in the second quarter, compared with 4.7 per cent for real GDP growth.
Senior Chinese officials, economists and academics are increasingly worried about the risk of China following Japan’s example after the bursting of its bubble in the 1990s led to decades of low economic growth.
Authorities last year began quietly pressuring experts to stop talking publicly about economic problems, particularly deflation, in an effort to shore up sentiment in the market.
The Bund Summit, hosted by the China Finance 40 Forum, one of the country’s top economic think-tanks, took place this week amid a broader chill on discussion of sensitive topics in the mainland.
The event was the scene of Alibaba founder Jack Ma’s criticism of regulators in 2020, which set off a wider crackdown on the tech industry, including the last-minute cancellation of his Ant Group’s $37bn planned initial public offering in the US.
At this year’s event, none of the country’s most senior government officials were in attendance. Several of the discussions included US figures who attended via video link, including Robert Rubin, the former Treasury secretary, and Michael Spence, a Nobel laureate and professor emeritus at Stanford Graduate School of Business.
Senior attendees from foreign financial institutions were also sparsely represented, though Ashley Bacon, chief risk officer at JPMorgan, was there in person.
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