Writing for Project Syndicate, Yu Yongding, regarded by many as China’s pre-eminent monetary economist, reveals the underlying causes of high funding costs for Chinese businesses.
Yu asserts that although the State Council, China’s cabinet, made lowering funding costs for businesses, especially small and medium-size enterprises (SMEs), a top priority earlier this year, efforts to lower such costs have had “a limited impact.” To counter this, Yu argues that the People’s Bank of China should engage in monetary-policy loosening.
Despite the danger of undermining China’s economic-restructuring effort, Yu believes that such an approach can “avoid the pitfalls by placing it within a broader, more comprehensive strategy that accounts for the underlying causes of the increase in funding costs for businesses.” He goes on to outline the fundamental factors that are driving up funding costs.
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