China needs reforms, not easing, to support growth, says son of former premier Zhu Rongji

Frank Tang

Excessive monetary easing will not save the global or Chinese economies, the ex-head of the country’s first investment bank and son of its greatest reformers said on Tuesday, and Beijing should instead have the courage to proceed with much needed structural reforms.

“It’s impossible to lift the economy out of mud by continuously printing money,” Zhu Yunlai, the former CEO of China International Capital Corporation (CICC), the country’s leading investment bank, told an annual conference organised by financial magazine Caijing.

The remarks from Zhu, the son of former premier Zhu Rongji, referred mainly to the decision by some developed nations to restart quantitative easing in the face of a potential global recession, but could also serve as a reply to mounting calls for China to increase stimulus measures to arrest slowing growth.

[Monetary printing] seems to save the economy in the short term, but in the long run, it, like poison, will worsen the efficiency of the whole economy … We must stop it if it proves not to be good

Zhu Yunlai

“[Monetary printing] seems to save the economy in the short term, but in the long run, it, like poison, will worsen the efficiency of the whole economy … We must stop it if it proves not to be good.”

“This is also our biggest challenge for our [economic] transformation,” said Zhu, who served as the chief executive of CICC from 2004 to 2014 and is also known as Levin.

“Considering our industrial structure – we’ve already built enough housing. We should think about what kinds of industries we really need. If the services sector is the future, how can we improve its efficiency? All of these are challenges.”

Zhu’s opposition to excessive monetary loosening found support among Beijing academics, advisers and policymakers at the Caijing conference on Tuesday.

“I certainly don’t oppose countercyclical adjustments, but we must bear in mind that there could be a risk of forming new ‘financial zombies’ with excessive policy easing,” Huang Yiping, a former policy adviser of the Chinese central bank, said during a panel discussion.

Chinese economic growth slowed to 6.0 per cent in the third quarter, the slowest pace in nearly three decades. Financial markets will be closely watching the tone set by Beijing policymakers when they meet in December to set policy priorities for next year at the annual Central Economic Work Conference.

Some analysts have argued for increased stimulus, citing the impact of the prolonged trade war with the United States and the government’s target to double gross domestic product between 2010 and 2020, which would require growth of at least 6.1 per cent next year. Many private sector economists, as well as the International Monetary Fund and World Bank, are projecting Chinese growth below 6 per cent next year.

Expectations of monetary easing were fuelled last week after the People’s Bank of China cut the interest rate on its medium-term lending facility (MLF) – which it used to provide low-cost liquidity to the banking system – for the first time in three years.

Others have insisted that China’s economic problems are best served by structural reforms and further opening-up, in line with government goals outlined in 2013.

China’s Communist Party elite reiterated at the conclusion of the fourth plenum a week ago that the market would continue to play a “decisive” role in resource allocation and the direction of the socialist market economy. China will also implement measures to open its economy, including allowing foreign companies to take full control of Chinese financial firms from next year.

However, scepticism remains among foreign officials and firms over far and fast reforms will actually proceed.

Zhu’s father is remembered as one of China’s greatest reformers, serving as premier between 1998 and 2003 under President Jiang Zemin. He is credited with cleaning up the economy in the 1990s by forcing the bankruptcy of tens of thousands of state-owned enterprises, a decision that led to millions of lay-offs. He also successfully pushed China’s ascension to the World Trade Organisation in 2001 despite strong domestic opposition.

His contributions were remembered by Alan Greenspan, the former chairman of the US Federal Reserve, who recalled their last meeting at Diaoyutai State Guesthouse in Beijing 14 years ago, where the pair discussed a wide range of issues, including the social safety net, state-owned enterprises, bank supervision and the Chinese stock market.