Xi Jinping's Resurfaced Speech Hints At China's Central Bank Emulating Federal Reserve Approach

In a potential shift in China’s monetary policy, a resurfaced speech of Chinese President Xi Jinping has indicated that the People’s Bank of China (PBOC) may start trading government bonds to regulate liquidity. This move is reminiscent of strategies used by the U.S. Federal Reserve and other leading central banks.

What Happened: Xi’s comments, first made in an October speech and recently made public in a newspaper article and a book, have ignited speculation among traders, Bloomberg reported on Tuesday. The PBOC has not made a significant bond purchase since 2007, making any move in this direction a considerable policy shift.

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Xi’s ambiguous comments have led some traders to speculate that Beijing might be contemplating quantitative easing (QE), a stimulus form involving sovereign bonds and other asset purchases to lower yields and stimulate economic activity. However, others hesitate to interpret Xi’s comments as a drastic policy shift.

Xi specifically mentioned to "gradually increase the buying and selling of government bonds," a significant distinction from QE, which usually involves buying and holding. Additionally, with China’s interest rates still well above zero, the PBOC has less incentive to consider QE, generally seen as an emergency tool.

Why It Matters: Xi’s comments have ignited debate about the future of China’s monetary policy. The possibility of the PBOC beginning to trade government bonds could be viewed as an additional tool to inject liquidity into the market and stabilize rates. However, the timing and impact of such a move remain uncertain. The central bank’s actions could have significant implications for the global economy, given China’s position as the world’s second-largest economy.

This speculation comes in the wake of China’s economic struggles in 2023 and a $7 trillion downturn in early 2024. However, recent investments in the tourism sector by the Industrial & Commercial Bank of China Ltd (ICBC) have provided a ray of hope for the Chinese economy.

Read Next: China’s March Manufacturing Growth Could ‘Dump Into Global Markets, Thus Triggering Deflation,’ Expert Warns

Photo by Gil Corzo on Shutterstock

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