As readers of the comments on Brad Setser’s blog may recall, RebelEconomist suggests an alternative sterilisation tool: the Chinese authorities could sell some stakes in
Privatising SOEs would be consistent with other Chinese economic policies. The authorities would like to brake economic growth, and the Chinese stock market has probably been a more important source of economic stimulus than low interest rates. Increasing the supply of stock could be expected to lower stock prices and raise yields. While the stock market has fallen back since last year, it does arguably remain
In fact, because Chinese stocks are so expensive, given present yields on stocks and central bank bills, selling state shareholdings instead of bills would lower the current cost of sterilisation.
The state has no shortage of shareholdings to sell. The
Since base money is of indefinite duration, equities are arguably a more appropriate sterilisation instrument anyway than bills, which need to be rolled over until the economy grows sufficiently to hold the excess stock of base money created by intervention without inflation.
Apart from vexing existing holders of Chinese stock (which may be inevitable anyway if the authorities want to restrain the boom), the main obstacle seems to be coordinating the various state institutions involved, from the central bank to layered holding companies, but this should not be insurmountable, given the political will.