Chinese Central Bank Says New Monetary Policy Tools Are not a Form of Quantitative Easing

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A senior official from the People’s Bank of China (PBOC) says recently launched monetary policy tools to help shore up financial inclusion are not commensurate with quantitative easing.

On 1 June PBOC and the China Banking and Insurance Regulatory Commission (CBIRC) announced the launch of two new monetary policy tools:

  • The financial inclusion micro-and-small enterprise loan extension support tool (普惠小微企业贷款延期支持工具), and the
  • The financial inclusion micro-and-small enterprise credit loan support plan (普惠小微企业信用贷款支持计划).

Under the Support Plan PBOC will purchase up to 40% of the fi­nan­cial in­clu­sion MSE loans made by re­gional le­gal per­son banks dur­ing the pe­riod from 1 March to 31 De­cem­ber 2020, which are expected to total around 40 billion yuan.

At a press conference held on 2 June Pan Gongsheng (潘功胜), deputy PBOC-governor and head of the State Administration of Foreign Exchange (SAFE), said that the “loan extension support tool” and the “credit loan support plan” were short-term policies for supporting the resumption of work and production by Chinese enterprises in the wake of the COVID-19 outbreak.

The two polices will focus mainly on quantitative as well as structural support.

“The financial inclusion MSE credit loan support plan is distinct from our previous monetary policy tools,” said Pan.

“It is the direct purchase of MSE loans from small and medium-sized financial institutions. It is the same as the other new tool and is also a short-term policy arrangement.”

Pan said that the new monetary policy tools were not a form of quantitative easing in terms of either scale or intrinsic nature, and that China still had more room than other major economies for monetary policy implementation, because it remained within the scope of “normalised” monetary and credit policy.

“Insufficient supply of financial services for micro-and-small enterprises is still a comparatively prominent problem, and a key matter and focal point for the structural reform of financial supply,” said Pan.

On 2 June PBOC also is­sued the “Guid­ance Opin­ions Con­cern­ing Fur­ther Strength­en­ing Mi­cro, Small and Medium-sized En­ter­prise Fi­nan­cial Ser­vices” (关于进一步强化中小微企业金融服务的指导意见), out­lin­ing a raft of mea­sures to shore up ac­cess to funds for small busi­nesses. 

Pan said that in contrast to the new monetary policy tools, the Guidance Opinions are a medium and long-term policy for improving financial inclusion and access to funds for small Chinese businesses.

“MSE financial problems are an extremely complex systemic undertaking, and resolving this problem requires comprehensive policy implementation, unflagging persistence and long-term effort.”

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