ABSTRACT
After China’s success in engineering an economic “soft landing,” there have been some distinct changes in the country’s macroeconomic situation. The most important change is the shift from a seller’s market to a buyer’s market. Both theoretical analysis and actual practice have shown that the degree of commitment to a market economy in China is quite high. This chapter focuses on the function of monetary policy, and considers fiscal policy, particularly in the specific effect it has in expanding domestic demand. In a market economy, various types of treasury bonds customarily make up 10% of the total assets commercial banks carry. Correspondingly, financial institutions also serve as bond holders and normally account for a significant part of the treasury bonds. If financial institutions hold large quantities of treasury bonds, and the Central Bank employs an open market operational mode to adjust the basic money supply, the question of the Central Bank’s holding of treasury bonds will automatically be raised.
