China’s President Xi Jinping’s visit to Hong Kong coincided with the official start of the China Bond Connect program with Hong Kong that gives offshore investors another way to access the mainland’s $10 trillion debt market. Although the link between China’s mainland and offshore bond markets may look ceremonial, for the People’s Bank of China it could help set the stage for a policy shift.
Getting a handle on China’s monetary policy is not an easy task. That’s because the PBOC has multiple objectives: growth, price and financial stability, and controlling the currency. A shift in monetary policy, therefore, represents a change in focus within this multiple objectives strategy. This is what happened in late 2015, when policy shifted from a focus on hiking reserve requirement ratios to managing the yuan. Credit in China rapidly expanded and by the spring of 2017 the PBOC embarked on a campaign to reduce the amount of leverage in the economy and control growth in domestic credit.
