China leads in precision-guided central banking. Does it work?

IN ECONOMICS TEXTBOOKS, central banks wield power by raising or lowering interest rates. That depiction, always a little simplistic, is now badly out of date. Since the financial crisis of 2007-09, and especially since the onset of the covid-19 pandemic, central bankers have dramatically expanded their arsenals. They have bought trillions of dollars in assets—mostly government bonds—to keep economies and financial systems from freezing up. And they have become more hands-on, trying to steer cash to “real” businesses, not just to markets. These actions reflect both the severity of the economic shock and the constraints on monetary policy in rich countries, where short-term policy rates are already at or below zero. But when it comes to unconventional interventions, it is a central bank in a very different situation—managing the world’s strongest major economy—that is by far the busiest.