PBOC Seeks to Calm Arbitrage Concerns after Bills Financing Surge in January


The Chinese central bank has imputed a sharp rise in bill financing in January to the success of measures to shore up support for the real economy.

Recent data from the People’s Bank of China (PBOC) indicates that bills financing saw a marked increase in January, with new on-balance sheet bills financing and off-balance sheet undiscounted banker’s acceptances hitting 516 billion yuan and 378.6 billion yuan respectively.

New on-balance sheet bills financing and off-balance sheet undiscounted banker’s acceptances jointly accounted for 19.3% of total social financing, for an increase of 13.5 percentage points.

At an executive meeting of the State Council held on 20 February Premier Li Keqiang warned of the potential for a sharp increase in bill financing and short-term loans to lead to “arbitrage and the empty transfer of funds.”

PBOC’s monetary policy department has since sought to assuage the concerns raised by Li’s remarks.

According to a statement from PBOC there has certainly been a marked decline in the discount rate amidst an expansion in counter-cyclical adjustments and a reduction in the financing costs for enterprises, creating a brief window for arbitrage in the month of January.

PBOC officials said that there is no longer any room for arbitrage, however, given that rates for structured deposits have returned to rational levels.

The Chinese central bank further points out that the marked increase in bills financing in January was mainly to support the real economy, with a sizeable decline in the costs for small, medium and micro-enterprises to engage in financing via such instruments.

“The use of discounted bills and structured deposits by certain enterprises to engage in arbitrage is only a short-term issue and not a widespread phenomenon, and isn’t the main factor behind the increase in bills financing,” said PBOC officials.