Monetary Policy Transmission, Inflation Dynamics, and Industrial Growth in China, 2018-2025

Abstract

This paper analyzes the joint movement of monetary policy, inflation, and industrial growth in China during 2018-2025, with special attention to the post-2019 Loan Prime Rate (LPR) framework. It argues that the period should not be read simply as one of either policy success or policy failure. Instead, the evidence points to a regime of incomplete but still operative transmission. The one-year LPR moved downward after the 2019 reform, showing that China's monetary stance became more clearly accommodative. At the same time, inflation shifted from temporary pressure to a prolonged low-inflation environment, suggesting that weak domestic demand became a more important macro constraint than overheating. Industrial value-added growth remained resilient relative to the scale of shocks, but it normalized around a moderate range rather than returning to older high-speed patterns. Using official annual macro releases and relevant scholarship, the paper shows that lower rates helped stabilize the real economy, yet their effects on prices and activity were lagged, partial, and increasingly conditioned by structural adjustment. The main implication is that monetary easing remains necessary, but it cannot by itself restore a stronger growth-inflation nexus unless it is combined with demand-side support, expectation management, and productivity-enhancing industrial policy.