China will maintain a prudent monetary policy stance this year and keep the yuan in line with fundamentals as it uses fiscal tools to spur growth, according to central bank Deputy Governor Chen Yulu.
The Chinese economy has been “generally stable,” Chen said a statement to the International Monetary and Financial Committee, which was posted on the IMF’s website. Authorities will further open up the financial sector and level the playing field between local and foreign-funded institutions to strengthen the industry, he said.
“Prudent monetary policy will be neutral in general,” the deputy governor said. “China will pursue a proactive fiscal policy with greater intensity and enhance its performance, focusing on cutting taxes and fees on a larger scale.”
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Policy makers in Beijing have been trying to stimulate growth without causing a debt blowout as trade tensions complicate the outlook for an economy that’s already slowed moderately because of a domestic financial cleanup. The Wall Street Journal reported on Friday that the U.S.-China trade deal may include penalties if the latter manipulates its currency to boost exports.
China will continue to “improve the exchange rate mechanism and keep the RMB exchange rate in line with fundamentals at an adaptive equilibrium level,” Chen said.
The potential for foreign portfolio investment inflows is growing, the central bank official said, pointing to the inclusion of yuan-denominated assets into global indexes as a reason. Such inflows hit a record $120 billion last year, he said.
“The stock market, which has seen a slack in the past few years, is showing signs of bottoming out and recovering,” he said.
Chen said that Chinese and foreign-funded financial institutions will be treated “equally in a way that is more transparent and consistent” with best international practices to strengthen the vitality of the financial sector.
The government passed a new foreign investment law in March that it hopes will keep global companies enthusiastic about China. The law, to take effect in 2020, is designed to address a longstanding source of resentment by overseas companies that vast swathes of the economy remain closed off to foreign capital.
The government is also making progress on state-owned enterprises, Chen said. More than 1,900 so-called zombie enterprises, former central SOEs, and distressed companies had exited the market by the end of last year, he said.