context: Over the past few years the financial sector was accused of moving away from the real economy to excessive financialisation. The sector started self-correcting with regulation tightening and emphasising risk prevention, whereas reform for the real economy remains stagnant.

While monetary policies actively respond to economic challenges, they cannot single-handedly solve economic challenges, which require more action from fiscal and real economy side. The key to fostering high-quality growth and financial risk control is structural reform with fiscal and taxation overhaul at its core, says Xu Zhong 徐忠 People’s Bank of China Research Bureau director.

The financial sector cannot fight the risk prevention battle alone: One side of it is monetary policy and financial regulation; the other side is the real economy restructuring, including real estate and local government debt, argues Yang Weimin 杨伟民 Chinese People’s Political Consultative Conference Economy Committee vice director at the Lujiazui Forum on 14 June 2018. At the same event, Guo Shuqing 郭树清 China Banking and Insurance Regulatory Commission chairman also emphasised acceleration of SOE reform, zombie enterprise elimination and corporate debt default.

Domestic and international challenges abound for China’s economy, including

Reversing downward economic pressure and structural adjustment put monetary policy in a quandary: Monetary stimulus will give a short-term boost to economic activities but exacerbate financial bubbles, while not doing so risks a sliding economy. Scholars are also bifurcated, according to Wechat channel Frontier Observer

The State takes a middle-of-the-road approach by maintaining a reasonably abundant liquidity and target monetary expansion to small and medium enterprises and rural and agricultural firms, according to the State Council executive meeting on 20 June 2018.