Reuters:

Last year, the Chinese economy maintained a low inflationary trend, with certain months experiencing simultaneous CPI and PPI declines. This raised concerns in the market about deflationary pressures. How does the central bank view the price trends this year? What policy measures will be taken to address potential deflation risks?

Pan Gongsheng:

Thank you for your questions. Price trends are a matter of great concern. I would like to share some perspectives on this.

The issue has drawn widespread attention from media journalists and scholars. When discussing this matter, it's important to analyze it from a broader perspective and over a slightly longer period. We need to examine the trajectory of price changes in major global economies and China over the past few years and the underlying logic behind them. I remember, a few years ago, when the pandemic hit, that to tackle the crisis effectively, major global economies generally implemented loose fiscal and monetary policies. The pandemic caused significant disruptions to the global supply chain, compounded by geopolitical events like the Russia-Ukraine conflict. As a result, major economies saw a rapid increase in inflation. The CPI inflation rate in the U.S. peaked in June 2022 at 9.1%, while the highest rate in the eurozone was 10.6% in October 2022.

For China, we adhered to normal monetary policies during the pandemic, avoiding excessive tightening or loosening. Our industrial chain and supply capacity remained robust, ensuring stable operations. Despite global high inflation, our country's price levels remained generally stable, without significant issues of inflation or deflation. In 2021 and 2022, China's CPI increased by 0.9% and 2%, respectively.

After the pandemic, major central banks in the U.S. and Europe swiftly and intensively adjusted their monetary policies in response to high inflation. In just over a year, the Federal Reserve increased interest rates 11 times, raising the policy interest rates by 525 basis points. Similarly, the European Central Bank raised its rates 10 times, with an upward adjustment of 450 basis points. From a historical perspective, it's quite rare to see such rapid and intense adjustments to policy interest rates within such a short period. Meanwhile, the global supply chain has gradually recovered since the end of the pandemic, leading to an overall decline in commodity prices. We have noted that inflation levels in the U.S. and Europe have fallen from the previous high of around 10% to the current level of approximately 3%. We believe that the rapid and unexpected decline in inflation levels in developed economies also has implications for prices in China. I just provided a global perspective on this issue. Figuratively speaking, it's like inflation levels in developed economies falling from the 10th floor to the third floor, while China's decline is from the second floor to the ground. This gives us the overall macro context.

From a domestic perspective, there is insufficient effective demand, overcapacity in certain industries, weak social expectations, and low price levels. In 2023, the CPI increased by only 0.2%, marking a significant decline compared to the previous year. International financial organizations, such as the International Monetary Fund, along with various financial institutions in the market, also predict that China's price levels will experience a moderate rebound in 2024, driven by sustained improvements in domestic demand and changes in external price conditions.

Referring to the second question, what measures will the PBC take? We will intensify cross- and counter-cyclical adjustments when employing monetary policy tools, fostering a conducive monetary and financial environment for economic growth and price stability. I would like to share three key points with you all.

First, we will prioritize the maintenance of price stability and fostering a moderate price rebound as a crucial aspect of our monetary policy. This entails a steadfast commitment to monetary policy objectives, ensuring currency stability to promote economic growth.

Second, we will optimize the allocation of financial resources. We will guide financial institutions to scientifically assess risks, restricting financing supply to industries with overcapacity, and meeting reasonable consumer financing needs in a more targeted manner. 

Third, we will enhance coordination between financial policies and other measures. This extends beyond the financial domain, addressing broader macroeconomic considerations. It involves leveraging policy synergies to boost household income, create more employment opportunities, strengthen the social security system, and fully implement a consumer-driven strategy. The primary objective is to support the expansion of domestic demand, facilitate supply-demand alignment, and promote a positive economic cycle. Thank you.