China has to scale back its massive fiscal spending to tame inflation, a local central bank official said on Monday, outlining the policy friction that often arises between different agencies over how the economy should be managed.
Zhang Yuanjun, vice-president of the central bank's branch in the northeastern Chinese city of Harbin, said China's fiscal spending, along with the lack of central bank independence, was a root cause of inflation.
Zhang, who wrote his comments in an article published in the Financial News, said Beijing's policy of posting fiscal deficits every year and issuing treasury bonds had made China's Ministry of Finance a "supporter of inflation to some extent."
"When the central bank realises there are inflationary pressures and wants to take prudent measures, there are often different voices among fiscal authorities," Zhang wrote.
China's central bank, unlike its counterparts in other major economies, exercises no autonomy in monetary policy and behaves like a ministry that reports to China's State Council, the cabinet.
As such, the central bank's policy decisions are often influenced by other powerful ministries in the cabinet.
As China's inflation hit a 34-month-high of 5.5 percent in May and is likely to top 6 percent in June, China's central bank is under pressure to keep price pressures under control.
But to do so, Zhang said China must "strictly control fiscal expenses and make efforts to cut fiscal deficits."
"The central bank should be the one responsible for price stability, but currently our system leans towards 'big fiscal, small central bank,' and the central bank is finding it difficult to fulfill its responsibilities," Zhang said.
