Source: Xinhua

China is expected to fine-tune its monetary policy next year to achieve the dual tasks of boosting economic recovery and forestalling financial risks, analysts said.

China will keep its macroeconomic policies consistent, stable and sustainable in 2021, with a prudent monetary policy that is flexible, precise, reasonable and moderate, according to the tone-setting Central Economic Work Conference that took place in December.

"We should strive to implement targeted and effective policies, make no sharp turns and pay attention to the ideal timing, extent, and impact of policies," the meeting said.

China's macroeconomic policies are expected to be "normalized" next year after credit expansion this year to support the virus-hit economy, but the tightening bias is likely to come in a step-by-step manner, said Wang Qing, an analyst with Golden Credit Rating International.

"It's unlikely that we will see a sudden shift in policy direction. The meeting suggested that no 'policy cliff' would occur," Wang said.

Instead of adopting a deluge of strong stimulus policies amid disruption due to the COVID-19 pandemic, China has implemented a prudent monetary policy in a flexible and appropriate manner to minimize the pandemic's impact and offered liquidity to those that suffered the most.

Special temporary monetary policy tools have been used in response to COVID-19, said Guo Kai, an official with the People's Bank of China (PBOC), giving examples of reloans supporting the production of medical supplies and deferred repayment of inclusive loans.

Targeted support was given to micro and small enterprises, which were hit hard by the pandemic. Outstanding inclusive loans to small and micro firms soared 29.6 percent by the end of September, hitting a new high in the past seven months, data by the PBOC showed.

As traditional counter-cyclical adjustments, the central bank also cut benchmark lending rates to counter downward economic pressure. The loan prime rates were cut twice this year, in February and April, when businesses were in dire need of cash to reopen. The rates have remained unchanged since May.

The rather restrained policy stimulus has left the country room to prevent a rapid decline in credit growth next year, which could lead to bond defaults and other financial risks, according to Lu Ting, chief China economist with Nomura.

He expected the country's credit expansion rate to go down slightly next year if the pandemic starts waning globally.

"The chance that a systemic financial crisis would occur in China is very low thanks to sound economic fundamentals and enough policy space for the government to counter risks," he said.

In a meeting held after the recent Central Economic Work Conference, the central bank vowed to keep the country's macro leverage at a stable level while walking a fine line between boosting economic recovery and preventing risks.

It also pledged further support for private and small firms, while stepping up credit expansion in fields including technological innovation, green development and manufacturing.

In the next year, the central bank will continue to maintain ample liquidity in the market via a variety of policy tools, but across-the-board cuts in interest rates or reserve requirement ratio are unlikely, said Tang Jianwei, an analyst with the Bank of Communications.