Reforms in China’s Monetary Policy Reforms in China’s Monetary

Operational Guidance for Surveillance 
Decision 2007, 164
operational targets, 76–7, 89, 137–40
opportunity cost, 35, 221
OTC bond market, 150, 153–4, 157
output
gap, 101–2, 178
outright purchase of bonds, 54, 79

Index
●
251
overall capital formation amount, 196
over-
overdraft, 38, 50, 130, 151
over-investment impulse, 95
over-lending of banks, 70
overnight
overnight interbank lending rate, 
41
overnight interest rate, 121, 125 
(see also overnight lending rate)
overnight lending rate, 124–5
overnight liquidity surplus, 56–7
over-regulation, 102
paper money, 38
payment
payment/deposits ratio, 30, 31
payment and clearing, 80
PBC. See The People’s Bank of China
PBC balance sheet, 62
PBC Liquidity Management 
Framework, 62
PBC Real Time Gross Settlement 
system, 67
pegging US dollar, 215
penalty rate, 39
pension funds, 35
planned economy, 75
Plaza Accord, 161
pledged repo, 58, 59
pledged transaction, 58
polarization between the rich and the 
poor, 113
policy
communications, 105
consistency and stability, 101
political stability, 202
position, 45–6, 58, 63–4, 68, 71, 116–
19, 149–59, 174, 188, 191–204, 
211, 219, 224
Postal Savings Bank of China (PSBC), 
81
potential economic growth, 199–206. 
See under economic growth
PPP, 176. See purchasing power parity
preconceived ideas contrary to the 
Facts, 8
price
asset prices, 99
price evaluation index, 109
price formation mechanism, 58, 155
price index, 66, 180, 181, 230
price path, 169
price stability, 41, 76–7, 95–6, 152, 
159–61
price stickiness, 169, 181
price trend expectation, 109
price-based targets, 78
price-based tools, 94, 100–7
product prices, 169, 185, 222
price-lag adjustment, 169
primary dealers, 52–3, 85, 137–9
prior announcement, 98–9
private sector, 36–40, 202, 212–13. 
Compare public sector
pro-cyclicality, 99
productivity rate, 5, 180, 187, 191
profit, 11–12, 33, 100, 109, 161, 171, 
199, 203, 208
public sector
Public Sector Borrowing 
Requirement, 37–8
purchasing power parity, 159–69, 172, 
179, 224
quantitative researches, 164
quantity-based tools, 94, 100, 
103, 106. Compare price-based 
tools
quantity-oriented target, 124–5, 127
random shocks, 183–4
rate. See also interest rate
benchmark deposit rate, 101
bid-winning interest rate, 156
federal fund rate, 124
free floating rate, 91
raw materials, 12, 87, 112

252
●
Index
RCC lending rate
ceiling for, 89
real
real economy, 34, 41, 43, 75, 85, 
88, 107, 149, 150, 166, 171–2, 
191, 202
real estate, 86, 95, 162, 187, 202, 217
real estate bubble, 86, 202
real exchange rate, 4, 159–67, 
171–87, 213–19, 220–39
real effective exchange rate, 
161–8, 170–3, 180, 183, 219
real growth rate, 218
real interest rate, 110, 150, 165, 182, 
186, 211
real money balances, 169
reasonable expectation, 140
rediscount
rediscount bills, 84
rediscount to commercial banks, 50
redistribution, 116
refinancing, 10, 19, 119–25
reform and opening-up, 77, 88, 90, 96, 
114, 219
regulation
financial and macro-economic 
regulation, 75, 95, 103
financial regulatory system, 75
macroeconomic regulation, 75, 95, 
103
repo agreements, 50–8, 79, 229
repurchase agreements, 79
repurchase transactions, 54
reserve
borrowing reserves, 39, 47
excess reserves, 3, 13–18, 22, 40–8, 
120–7, 138
excess reserves ratio, 3, 40, 64
foreign exchange reserves, 50, 56, 
62, 67, 97, 116, 167, 229
meet the reserve requirement, 20–9, 
77–81, 104, 128
required reserve ratio, 2–23, 42–58, 
60–80, 100–22, 147, 227 (see 
deposit reserve ratio)
reserve account, 80, 120
Reserve Bank of Australia, 123
reserve currency, 172, 191, 211
non-reserve currency issuing 
countries, 172
reserve currency issuing countries, 
172
reserve payment, 13
reverse repo operation, 79 (compare 
repo operation)
reserve shortage, 39
reserve supply, 67
reserves demand, 5, 40–54, 60–6, 
119, 120, 228
reserve demand-to-supply ratio, 
46, 48–9, 54, 64, 67
reserves management systems, 62
reserves-to-deposits ratio, 40
resource allocation, 76, 104
retail consumption per capita, 186
risk premium, 53, 161, 212, 213
RMB
RMB convertibility, 93, 217
under capital account, 93
RMB exchange rate regime, 5, 90–4, 
103, 171, 214
RRR, 54, 80, 81, 97–107. See reserve 
requirement ratios
rural credit cooperatives, 83, 89
saving
household savings, 33, 193, 199, 
200–6
saving deposit, 34, 235
saving-investment gap, 4, 5, 213
savings and loan associations, 35
savings rate, 194–211
corporate, 199, 202–3
household, 206
scattered savings, 34
secondary market, 67, 72, 122, 144, 156
sector
private, 36, 38, 39, 40, 202, 212–13
public, 37, 38, 202
self-balancing behavior, 18

Index
●
253
settlement
inflow of foreign exchange, 33, 80, 
100, 159
settlement of foreign exchange, 33, 
70–2
Shanghai Stock Exchange, 111
shares, 34, 116, 117, 136
short-term
governmental financial assets, 38
repurchase transactions, 54
single target system, 95
single-equation method, 166
SLF, 3, 84, 105, 107. See standing 
lending facility
SLO, 3, 84, 105, 107. See short-term 
liquidity operation
small adjustment, 98, 99
SME, 42, 49, 63, 68, 87, 89, 108, 126, 
164, 178, 236
social brackets, 114
social wealth, 35, 113–17
socialist market economy, 75, 93
SOE, 203
soft constraint, 95, 104
solvency, 28
special-purpose policy lending, 83, 105
specific accounting analysis, 8
speculative activities, 172, 212
spending
government, 193
spill-over effects, 103
State Council, 76, 80, 101
state-owned enterprises, 106, 199, 203
Stein, 173, 194–5, 209–10, 233–7
stock
capital stock, 169, 179, 181, 208, 209
capital stock per capita, 208, 209
stock market, 78, 97, 115–17, 131, 
148–9, 153, 158
bullish, 115–17
structural
structural adjustment, 55, 162, 171, 
192, 195, 196, 198
domestic and international 
economic, 171
structural deficit, 44, 54–6, 67, 68
structural deficit liquidity 
management framework, 54–6, 
67, 68
structural inflation, 218, 221–2, 237 
(see under inflation)
structural liquidity deficit, 3, 4, 
41–9, 53, 55, 61, 63, 67, 68
structural package, 97
structural reserves demand, 62
subprime-mortgage, 161
subsidiary capital, 127
subsidies, 118, 194
supply of liquidity, 48, 50, 56, 58, 127, 
229
surplus
capital account, 93, 104, 217, 225
current account, 3–6, 92–3, 
164–8, 174–8, 192–9, 206–13, 
230–7
double surplus, 100, 104, 106
in the international balance of 
payments, 79, 106
trade surplus, 92, 159, 161, 174, 192, 
194
suspicion over the theory of money 
creation, 8
sustainable economic development, 210
Swan, 1963, 164
swaps
foreign currency swap, 123
foreign exchange swap, 122–3, 126
Taiwan Central Bank, 125
tax
business tax, 118
corporate income taxes, 107
taxation, 60, 119–20
T-bond, 35, 51, 130
teaching tool, 35
technically bankrupt, 96
TFP, 207
the chicken or the egg puzzle, 23, 25
The PRC Regulations for the 
Administration of Banks, 76

254
●
Index
the Twelfth Five-Year period, 203, 206, 
209
top-grade assets, 57
Total Factor Productivity, 207. See TFP
tradable goods, 166, 180, 217
trade
trade cycle, 196
trade surplus, 92, 159, 161, 174, 
192–6, 211, 213, 219
trade volume, 186
trading
counterparties, 51, 52, 137, 156
volume, 38, 39, 46, 132, 133, 153, 
158
transactions, 2, 19–31, 46, 51–4, 63, 
71, 119–42, 225, 229
transformation
of development pattern, 91, 
102, 104
transition economy, 94
treasury bonds, 30, 38–9, 50, 51, 68, 
72, 121–2, 131, 142–7, 151–5, 
229–30
trust institutions, 35
ultimate deposit, 10
ultimate targets, 76, 77, 80, 88
economic growth, 34–5, 68, 73–7, 
95, 102–17, 148, 163, 172–5, 
196–219, 234, 238
price stability, 41, 76, 77, 95, 96, 
102, 103, 159–61
stabilizing currency, 76
uncontrollable autonomous 
assets, 130
urbanization, 75, 94, 208
utility
expected, 169, 182
households’, 169
individual utility function, 179
volatility
exchange rate volatility, 179
of exchange rates, 97
financial volatility, 191
of overnight interest rate, 121
of reserve, 119, 121
wealth
wealth disparity, 118
wealth distribution, 114–15, 118
wealth effect, 116
wealth illusion, 116
welfare
welfare analysis, 175, 178
welfare loss, 163, 172
Williamson, 1983, 173
window guidance, 77–8, 86–8
written debt certificate, 36
WTO, 94, 97, 144, 173, 191, 196, 
202–3
yield curve, 51, 58, 123–4
youth dependency ratio, 201–2
zero interest rate policy, 100, 125

About the Author
Sun Guofeng, Deputy Director General, Monetary Policy Department, 
People’s Bank of China. 
Sun Guofeng graduated from the Graduate School of the People’s Bank 
of China in 1996, before joining PBC’s Planning and Central Bank Lending 
Department in the same year. He then worked in the Bank’s Monetary 
Policy Department, where he served as Deputy Director of Open Market 
Operations and subsequently Director of Foreign Exchange Transactions. 
Mr. Sun has held the office of Deputy Director General of Monetary Policy 
Department since 2010, primarily engaged in the establishment of the inter-
bank bond market, the development of China’s money market, the launching 
of open market operations, the reform of RMB exchange rate regime, and the 
innovation of monetary policy tools. During 2003 to 2004, he was invited to 
do research as a visiting scholar at Stanford University. Mr. Sun is currently 
a professor at People’s Bank of China, a part-time professor at the University 
of International Business and Economics in China, a graduate tutor at the 
Tsinghua University of China, and a distinguished member of the China 
Finance 40 forum. 
Sun Guofeng holds a PhD degree in economics from Chinese Academy of 
Social Sciences, and has for many years studied topics such as credit money 
theory, central bank monetary policy, RMB exchange rate, the bond market, 
the money market, and international financial markets. He is the author of 
2 books and more than 70 academic papers published in academic journals, 
including “Economic Research” (China), “Financial Research” (China), and 
“Journal of Chinese Political Science” (US), and has been a guest speaker 
at various colleges and research institutions including Stanford University, 
University of California, Berkeley, the Bank for International Settlements, 
Peking University, China Academy of Social Sciences, and China Society for 
Finance.