April 17, 2013 9:43 am

Chinese official endorses monetary easing

Jin Liqun, chairman of China Investment Corp.'s (CIC) supervisory board, listens during a forum in Beijing, China©Bloomberg

A senior Chinese official has given a cautious endorsement to the radical monetary easing policies in Japan and the US, calling them necessary but not sufficient to trigger economic recoveries.

The comments by Jin Liqun, chairman of the supervisory board at China Investment Corp, China’s sovereign wealth fund, could help alleviate concerns about “currency wars” by showing that influential figures in Beijing understand and, within reason, support the aggressive bond-buying programmes launched by central banks in developed economies.

“Monetary easing might be helpful but the role is very much limited,” Mr Jin said. “It is a necessary but not sufficient condition.”

Chinese officials and commentators have previously taken harder lines on the quantitative easing unleashed by the US Federal Reserve and, more recently, the Bank of Japan.

Chen Deming, China’s former commerce minister, said in March that “negative spillover effects from excessive issuance of the world’s main currencies” was his biggest concern this year, while the People’s Daily, the official organ of the Communist party, said “crazy money printing” by the US had started a currency war of competitive devaluations.

Mr Jin’s somewhat more tolerant stance towards the bond-buying programmes in the US and Japan was a striking contrast to these earlier warnings. However, his endorsement was limited, saying he was concerned that governments risked becoming overly reliant on central banks to nurse their economies back to health.

“If printing money could solve the problem, it would be so easy. Every country can print money,” he said on the sidelines of an investment conference. “Some people believe quantitative easing is a panacea. It’s not a panacea. If you don’t do something else to support this policy, it’s a recipe for disaster.”

CIC, which has about $500bn of assets under management, is the second-biggest Chinese investor overseas, ranking only behind the arm of the central bank that manages the country’s foreign exchange reserves.

Speaking two days after gold suffered its sharpest fall in 30 years, Mr Jin said he still had a favourable long-term view of the precious metal.

He said gold was an essential part of currency reserves and that the increase in the overall size of the global economy would outstrip the increase in the supply of gold.

“Relatively speaking, the supply of gold will not be that much, so over the long term gold prices should go up,” he said.

But he added that he did not expect steep rises and that upward pressures would fade if the US recovery gained speed and worries about Europe dissipated.

Mr Jin said CIC had small-scale exposure to gold investments and had done well out of them.

A jump in China’s foreign exchange reserves in the first quarter of 2013 has raised questions about whether CIC could be in line for another allocation of cash from the central bank to invest abroad. The last time CIC received an injection was 2011, when it received $30bn.

“I do believe CIC will need more money in the future. I cannot tell you the timeframe,” Mr Jin said. “We are not rushing to get more money at the moment.”

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