(Yicai Global) Dec. 14 -- The stimulus policies that governments have adopted to deal with the worldwide economic recession caused by Covid-19 will eventually fade, and China has been spearheading this process of normalization. 

The pandemic resulted in the biggest global recession since World War II, forcing governments to pursue ultra-easy monetary and fiscal policies. But such policies have to end as they cause massive debt burden, as well as high inflation and a fragile financial system. The US Federal Reserve announced last month that it will start “tapering,” or lowering the pace of asset purchases, in a signal that US monetary policy will begin the process of normalization. Next year, the global economy is expected to gradually recover from the impact of Covid-19 as the stimulus policies fade. 

But policy normalization also poses risks. The side effects from the Fed's tapering are slowed economic growth and a potential slump in asset prices. For emerging economies, the risks lie in capital outflows and currency depreciation, as well as higher inflation. 

China's macroeconomic policy has been different from other economies around the world. The People's Bank of China was the first central bank to start a pandemic response and was also the first to launch monetary policy normalization. The PBOC said in its third-quarter monetary policy implementation report that adjustments in advanced economies will only have a limited impact on China. 

The normalization of China's monetary policy is being backed up by the real economy. The country has achieved basic stability of production and consumption amid tight pandemic control and prevention policies, while the economy was also supported by strong domestic demand, a relatively complete industry chain and huge capacity. The pandemic's impact on other manufacturing powerhouses around the world was another factor in the early recovery of the Chinese economy, allowing it to be the only major economy to report growth last year despite the hit from Covid-19. 

The PBOC also ramped up its ability to adjust and control policies and did not simply resort to “flood-like” stimulus, using targeted measures instead. The macroeconomic policies have been responding to the pandemic, but also serving China's new reform cycle that takes high-quality development and common prosperity as the core goals. The priorities include economic security, featuring independent and controllable key industrial chains, green and sustainable environmental security, and social equity that seeks more equal development opportunities for individuals. 

The pandemic is not the only factor behind the policy normalization. The financial sector needs to return to its original state, and China must pursue its national strategy of reform and opening-up in the economic and social fields. Only by predicting and understanding future economic policy trends from these perspectives can we understand the true meaning of a return to normal. 

(The author is Yicai's editor-in-chief)

Editors: Zhang Yushuo, Tom Litting