Advisor advocates unconventional monetary policy to revive demand
One of China’s top economic advisers is calling for aggressive monetary loosening.
Speaking at a conference hosted by think tank China Finance 40, Zhang Bin – who we rank as China’s 20th most influential economist – argued the only way to sustainably revive domestic demand is to strengthen inflationary expectations.
- Only then will private sector firms start investing, and households start buying property again.
Zhang argues that to achieve this, consumers must be convinced that the central bank (PBoC) will loosen monetary conditions until prices start rising. That means using unconventional monetary tools, as well as rate cuts.
- “Don't assume there's no room for maneuver; even if policy interest rates drop to zero, there are still tools available.”
Sound familiar?
- Nobel Prize-winning economist Paul Krugman made a similar argument about Japan in the 90s, arguing that if the Bank of Japan had convinced the public it would deliver inflation-at-all-costs, it could have avoided the lost decade.
The PBoC has avoided aggressive interest rate cuts for fear of eroding bank profits. But Zhang isn’t worried about that, arguing:
- “As long as the economy improves…it will support…the profitability and health of financial institutions”
Get smart: Zhang has long argued for more aggressive monetary policy, although previously he only called for rate cuts. These recent comments signal a far more radical approach – but we don’t think policymakers will listen.
- PBoC officials have regularly poured cold water on QE or other unconventional monetary policies.
- Moreover, authorities are downplaying the risk of deflation – suggesting they don’t share the same concerns as Zhang.
The upshot: 2026 is likely to be another vanilla year for China’s monetary policy.