Central Bank’s $5tn Balance Sheet Set to Hold Steady Until 2018


The latest survey of People’s Bank of China observers by Bloomberg has found that most expect its USD$5 trillion balance sheet to hold steady in size or even further expand by the end of 2017.

Over 70% of 21 economists surveyed said they expect the PBOC balance sheet to remain the same in size or become bigger by the end of 2017, with only six expecting it to contract.

Economists surveyed by Bloomberg included Bank of China, Nomura Holdings and Societe Generale SA.

Despite its ongoing deleveraging drive and a modest asset contraction in the first quarter, PBOC is seen as having little incentive to further shrink its balance sheet until growth in the M2 money supply reaches the government target of 12%.

Ding Shuang, Standard Chartered Plc’s chief China economist in Hong Kong, notes that China’s money supply growth remains well behind this target, and does not expect balance sheet contraction for the next few years.

China’s trade surpluses and foreign direct investment previously led to a huge swelling of PBOC’s balance sheet, as it purchased foreign currency in order sterilise huge capital inflows, pushing it to a high of $5.5 trillion in 2014.

Foreign exchange still comprises around two thirds of PBOC’s assets despite capital outflows and depreciation of the yuan.