Regionally Diversified Monetary Policy

Policy Forum 15 (November 2021)

In recent years, the major central banks of the West have started expanding their original mandate of price stability, most notably maybe with Christine Lagarde’s ambition to conduct a “green” monetary policy. Contrarily, the People Bank of China (PBoC) has traditionally followed a broader agenda, supporting a wide array of the Chinese leadership’s economic objectives.

China has experienced astonishing development during the last four decades. The eastern coastal area benefited more from the early open policy because of its location and the development strategy of China. In the initial decades, the implications of the growing spatial inequality were attenuated because living standards in the rural Chinese hinterlands still increased considerably through trickle-down effects. However, these regions benefited to a substantially lesser degree. The increasing heterogeneity has become one of the major issues in the Chinese political landscape over time. Apart from the poverty in the hinterlands being perceived as a more pressing issue as the catching-up process slows, the considerable heterogeneity also poses an obstacle for policies that are in their very nature nationwide, such as monetary policy. Consequently, conducting a monetary policy that has a differentiated effect across the country’s regions and in doing so support the government’s poverty alleviation schemes became one of the PBoC’s major objectives.

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