China's Monetary Policy Credit Conduction Channel Research

Before 1998, the loan control management is the main means of the monetary policy in our country, which is canceled by the PBOC in 1998. After that, the monetary policy turned from the direct control to the indirect control. Concerning the practice of China's monetary policy in recent years, we can see the transmission mechanism was not smooth. During 1998-2002, although the monetary authority slowed the interest rate down, deflation continued in our country, and the growth rate of GDP remained a continued lower level. Conversely, in order to reduce the overheating investment, steadily rising consumer price index, rapid growth of M2 and loans, greater resource constraints of economy growth, the central bank has taken measures such as increasing the deposit reserve interest rate, increasing the deposit and credit interest rate, and using open market operations. Although the main economic indicators have fallen down, there are still factors which will probably generate inflation, the effective of monetary policy is doubtful too. So, it has become the popular research thesis that why our country's monetary policy transmission mechanism was not smooth.According to the economy theory, monetary policy has four kinds of transmission channel, which are rate channel, asset price channel, foreign exchange rate channel and credit channel. The researches of the domestic experts have declared that the main monetary channel is still by credit channel and the effect of other channels was not obvious. Therefore, it is meaningful to research the transmission mechanism of monetary policy by credit channel. The article analyses every period of the credit channel transmission, finds out the reason why the monetary policy transmission mechanism is not smooth, and put forward policy suggestion on the basis of conclusion.The paper devides the monetary policy transmission(including the narrow credit channel and the broad credit channel) into three periods, which are the central bank leading period, the commucial bank leading period, and the enterprises leading period. Based on the analyses, the paper comes to the following results:Firstly, the narrow credit channel is not smooth.The first reason is that the central bank cann't control the deposit of the banks absolutely by interest rate means. The second reason is that the loan supply of the banks is not totally affected by the fund which can be loaned . Enterprises use the credit to the productive investment after getting it, and the effect is very obvious.Secondly, the effect of broad credit channel is not obvious. It is mainly because that the central bank can not effectively control the External Finance Premium of enterprise which is due to thecoutrol of credit inerest rate, and the bank is not sensitive to the External Finance Premium of enterprise. The enterprises leading period transmission in the broad credit channel is effctive too.Last, the paper has put forward policy suggestion on the basis of conclusion.