This research investigates Ramsey optimal monetary and fiscal policies in China under capital controls, nominal exchange rate targets, and costly sterilization, employing a New Keynesian DSGE model. Policymakers act as benevolent planners to maximize household welfare. Assuming an untraditional indistinct fiscal and monetary policy regime, it examines policy responses to external shocks and potential reforms over flexible exchange rate regime, offering rigorous insights into welfare trade-offs in a constrained economy.