Abstract: This chapter begins with a historical review of China's monetary policy since the later 1990s. It briefly describes China's fiscal policy, then discusses China's growth prospects in 2006. It is argued that China is currently at a transitional stage between a government-led and market-led banking system, where neither official diktat nor market prices allow effective monetary control. Similarly, with the development of additional channels for capital flows into and out of the country, the authorities' limited tolerance for exchange rate flexibility increasingly poses a constraint on monetary control.

Keywords: monetary policy, China, inflation, fiscal policy, government-led banking, market-led banking,