China’s Central Bank Says Smooth, Orderly Deleveraging Must Continue

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The assistant governor of China’s central bank has said that it will continue to pursue a “smooth and orderly” deleveraging that will reduce the debt levels of financial institutions, while still maintaining market liquidity.

Writing in People’s Bank of China’s flagship publication China Finance, assistant governor Zhang Xiaohui pointed to the need to balance the country’s ongoing deleveraging drive with deft management of market liquidity.

“While sticking to the general policy on deleveraging, we should pay more attention to strengthening supervision co-ordination, having a good grasp of policy strength, rhythm, stabilising market expectations and maintaining steady and orderly structural adjustments,” wrote Zhang.

Zhang said that the central bank will maintain cautious monetary policy that will keep money supply and credit growth at appropriate levels, while also maintaining steady liquidity.

According to Zhang PBOC will curb financial risks, while also shoring up sport for the real economy.

Zhang’s article follows remarks by Yang Weimin,¬†vice-chairman of the Office of the Financial Work Leading Group of the CCP, indicating that China’s deleveraging campaign would continue unabated.

“In terms of work in the second half…the direction of deleveraging cannot be changed,” said Yang.¬†“Deleveraging is a long-term process, as each sector and industry has different levels of leverage.”

At China’s National Financial Work Conference held in the middle of July, President Xi Jinping declared that the deleveraging of the country’s state-owned enterprises was a “priority of priorities,” as well as announced the launch of a new financial oversight body headed by PBOC in order to improve the ability of regulators to tackle credit risk.

While China’s central government has repeatedly flagged its determination to stay the course of its deleveraging campaign, PBOC made ample injections in June and July, as part of efforts to keep liquidity steady amidst adverse seasonal factors as well as successive waves of maturing repo agreements and medium-term lending facilities.

 

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