Ways to Improve Chinese Monetary Policy Control Targets Studied by China's Economy & Policy

24 May 2012 • by Natalie Aster

Monetary policy is one of the main components of macroeconomic control. Optimizing the target system for monetary policies, establishing a sound monetary policy decision-making mechanism, and improving the transmission mechanism and environment for monetary policies, are the main proposals for improving the monetary policy system included in China’s National 12th Five-Year Plan.

The most recent article “Two Recommendations for Improving China’s Monetary Policy Control Targets” by China's Economy & Policy-Gateway International Group (China's Economy & Policy) analyzes how to improve the regulation and control of monetary policy targets in China.

Article Details:

Two Recommendations for Improving China’s Monetary Policy Control Targets
Published: April, 2012
Pages: 6
Price: US$ 200,00

To control the trend of the non-food index in the CPI should be the starting point for basic policies to stabilize prices and maintain the stability of currency value. From 2001 to 2010, the main cause for sharp variations in China’s CPI was the food index fluctuation which resulted from a temporary supply shortage of some or certain kinds of agricultural products, and it has happened almost every three years. In the 12th Five-Year Plan period, and over an even longer period of time, this situation will re-occur.

The main causes are as follows. First, in the process of industrialization and urbanization, the prices of agricultural products are bound to increase. Although, through the intervention of various policy measures, the price rise can be controlled within an affordable range for the urban and rural consumer, the rising trend cannot be stopped or reversed, not even through the use of monetary policies.

Second, China has to feed 22% of the world’s population with 7% of the world’s land, thus a tight balance for agricultural products will exist for a long period of time. Every few years, due to natural disasters, policy implementation failures, or other factors, prices of several agricultural commodities will rise as a result of an insufficient supply which leads to significant growth in the CPI food index.

Third, profits are usually not included in the price structure of Chinese agricultural products (especially the farming products), this is the result of using administrative mechanisms to depress the prices of agricultural products in the 1950s in order to support industrial development (this portion of the profits can be transferred to the industrial products in order to create incentives for industrial investments).

More information can be found in the article “Two Recommendations for Improving China’s Monetary Policy Control Targets” by China's Economy & Policy-Gateway International Group.

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