Chinese Central Bank Says It Won’t “Irrigate” the Economy


The People’s Bank of China (PBOC) flagged the maintenance of comparatively moderate monetary policy at a recent press conference.

At a routine policy press conference held by the State Council on 21 August, PBOC vice-governor Zhu Hexin (朱鹤新) said that the next step for the Chinese central bank would be to “invest all efforts in the proper performance of work for the finance sector to service the real economy, and properly control the sluice gate of the money supply.”

Zhu said that PBOC would absolutely refrain from engaging in “large-scale irrigation,” and instead use “mechanism innovations to raise the ability and willingness of the financial sector to service the real economy.”

According to Zhu China has faced complex internal and external economic and financial conditions since the start of 2018, prompting PBOC to launch and implement a series of policies directed at easing the problems of finance being expensive and difficult to access, in order to create a suitable monetary environment for supply-side structural reforms and high-quality growth.

On the one hand the Chinese central bank is maintaining “rationally ample” liquidity, and appropriately offsetting the impacts of various internal and external factors, while n the other hand it’s also taking the lead in expanding the vigour of financial support for “key areas and weak links.”

“Overall, the relevant policy measures have been implemented in an orderly manner, and the results of policy are gradually becoming apparent.”

Zhu pointed out that liquidity in the banking system has been kept at “rationally ample” levels, while loans have maintained comparatively rapid growth.

As of the end of July the excess reserve ratio of Chinese financial institution was 1.7%, for an increase of 0.6 percentage points compared to the same period last year.

During the period from January to July new renminbi loans were 10.48 trillion yuan, for an increase of 1.69 trillion yuan compared to the same period.

Zhu said that China’s credit structure is also undergoing “optimisation,” with continually expanding support for the real economy, particularly in the spheres of hi-tech manufacturing, the services sector and poverty alleviation, where lending growth exceeds the total average.

As of the end of June the targeted poverty alleviation project loan balance had seen YoY growth of 30%, while at the end of June financial inclusion small and micro-loans saw YoY growth of 15.8%, for a rise of six percentage points compared to the end of last year.

Bond markets are also seeing recovery according to Zhu, with a marked decline in yields for high-grade bonds.

During the period from January to July net financing via corporate bonds was 1.25 trillion yuan, while as of the end of July the yields on five-year and 10-year Chinese sovereign bonds were 3.23% and 3.48% respectively, for declines of 0.62 and 0.40 percentage points compared to the end of last year.