Xi’s cryptic bond comments hint at PBOC becoming more like Fed

A resurfaced speech from Chinese President Xi Jinping suggests policymakers in China may start trading government bonds to regulate liquidity in the market, pushing the nation toward strategies used by the U.S. Federal Reserve and other major central banks around the world.

Xi’s call for the People’s Bank of China (PBOC) to "gradually increase the buying and selling of government bonds” in its open market operations sparked a frenzy of speculation among traders last week. The remarks — made in October but publicized recently in a new book and newspaper article — may hint at a policy pivot for a central bank that hasn’t made a significant bond purchase since 2007.

"Central banks in other countries generally use government bonds, or sovereign credit, as a basis to issue money,” said Liu Lei, a researcher at the National Institution for Finance and Development (NIFD), a state think tank advising government agencies in China. "This is a necessary path for China’s central bank and monetary system to move into modern times.”