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China should maintain liquidity at a reasonably ample level and offer targeted support to companies hit by the coronavirus epidemic, China’s central bank Governor Yi Gang said.
The impact from the virus on China’s economy will be short-lived, and the fundamentals won’t change, according to the article by Yi published Sunday on the WeChat account of ChinaForex magazine, run by the country’s forex regulator.
The coronavirus pushed China’s economy into its first contraction in decades in the first quarter, with the spread of the disease around the world now leaving the nation reliant on fragile local demand to spur a recovery.
China Suffers Historic Economic Slump With Hard Recovery Ahead
“Too aggressive” macro stimulus may bring inflation risks and cause too rapid an increase in the macro leverage ratio, Yi said, in the article, on China’s financial assets structure. China should strike a balance between stabilizing growth and preventing risks. Keeping the leverage ratio basically stable is a proper choice, according to Yi.
To reduce the over-reliance on financing from banks, China should develop its direct financing market especially equity financing, Yi said in the article. He suggested that the country should push forward reforms on a registration system for initial public offerings.
Separately, Yi called for long-term changes in the real estate market in China and ensure the healthy and stable development of the sector. He wrote that China should optimize land supplies, and also create transparent and self-restraint systems on local government debt financing to cut their reliance on land revenues.
— With assistance by Sharon Chen, Jessica Sui, and Yinan Zhao
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