PBOC Releases 2020 Q2 China Monetary Policy Execution Report

The Chinese central bank has released it report on the execution of monetary policy in the second quarter of 2020.

On 6 August the People’s Bank of China (PBOC) released its 2020 Second Quarter China Monetary Policy Execution Report (2020年第二季度中国货币政策执行报告).

The Report highlighted the shock for the Chinese economy created by the Novel Coronavirus pandemic, leading to a YoY decline in first half GDP of 1.6%.

Second quarter GDP saw a YoY rise of 3.2% however, markedly ahead of expectations, while the first half consumer price index (CPI) saw a YoY increase of 3.8%.

According to the Report employment has stabilised overall, while trade has performed better than expectations.

PBOC said that “stable monetary policy has produced marked results and the efficiency of transmission has continued to rise,” leading to a “marked strengthening of the ability of finance to support the real economy.”

As of the end of June the M2 broad money supply grew 11.1% YoY, while total social finance grew 12.8%, markedly higher than the pace of increase in 2019.

In June the average weighted enterprise loan interest rate was 4.64%, for a decline of 0.48 percentage points compared to December last year.

The monetary loan structure has further optimised according to the Report, with financial inclusion micro-and-small loans rising 26.5% YoY at the end of June, and manufacturing sector medium and long-term loans rising 24.7%.

PBOC said that it would continue to implement “stable monetary policy which is more flexibly moderate, and flexibly operate the vigour of adjustments and the focal point of rhythms,” highlighting measures across three areas in particular:

1. Maintaining rationally ample liquidity. Making flexible use of tools including reserve requirement cuts, medium-term lending facilities (MLF’s), open market operations, re-loans and re-discounts, to guide the stable operation of market rates that revolve around policy rates. Stabilisation of market expectations.
2. Continuing to unleash the dividends of reform, reducing comprehensive social financing costs. Guiding declines of 30 basis points in MLF’s, driving declines in the Loan Prime Rate (LPR). Steadily driving shifts in the pricing benchmarks for outstanding floating rate loans, driving reductions in interest expenditures for outstanding loans.
3. Refining the structural monetary policy tool kit, and implementing targeted irrigation. 300 billion yuan in special re-loans and 500 billion yuan in re-loans. Implementation of re-discount policy has basically been completed. 1 trillion yuan in subsequent re-loan and re-discount policies.

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