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China’s Central Bank’s Four New Policy Characteristics

Xinhua republished an article from, which had reported on several major actions that China’s Central Bank has recently taken. The bank has stopped virtual credit card products, capped the amount of third party payments, and increased the volatility of the RMB exchange rate. All these show that People’s Bank of China is adopting policies to avoid innovation, reduce financial risks, and maintain the GDP level.

The article listed four new directions that the Central Bank is following:
1. Prevent financial problems and maintain the GDP level.
2. Focus on resolving financial risks and ensure that financial innovation does not create additional economic risks. The decision to stop virtual credit card products is an indication that the Central Bank would rather give up new innovation of financial products to avoid the potential risks associated with introducing innovative products.
3. Increate the volatility of the RMB exchange rate to push for the RMB’s devaluation and stimulate exports.
4. Limit the Internet purchase amount to support physical stores.

The article stated that because of item 1 and 2, the increasing trend of the RMB’s interest rate will be turned around and the cost of capital will decrease. This will lead to two results: one is to indirectly support real estate prices; the second is to limit financial innovation, which will reduce the inflow of foreign money into China.

1., March 18, 2014.
2. Xinhua, March 18, 2014.