Chinese Central Bank Flags Continued “Targeted Irrigation” of Real Economy via Structured Monetary Policy Tools

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The People’s Bank of China (PBOC) has committed to the continuation of existing monetary policy measures in the immediate wake of the 20th National Chinese Communist Party (CCP) Congress.

On 24 October the CCP chapters of PBOC and the State Administration of Foreign Exchange (SAFE) held joint meetings on the resolutions and spirit of the recently concluded 20th National CCP Congress.

The meetings called for “strengthening support for key areas, weak links and industries and demographics impacted by the pandemic; seizing the effective implementation of policies that have already been unveiled, and researching and unveiling new policies and measures.”

Domestic observers said that PBOC’s latest statements point to the continuation of monetary policies launched in 2022 to achieve “targeted irrigation” of the real economy by means of structured monetary policy instruments, chief amongst them special re-loan instruments.

In 2022 these have included 200 billion yuan in tech innovation re-loans; 100 billion yuan in transit and infrastructure re-loans, 100 billion yuan in special re-loans to support clean and efficient usage of coal, 40 billion yuan in inclusive aged care re-loans and 200 billion yuan in capital equipment improvement and upgrade re-loans.

In July PBOC also gave its support to China Development Bank (CDB) and Agricultural Development Bank of China (ADBC) establishing operating finance tools worth 300 billion yuan, to provide supplementary support to major projects, all of which had been invested by 26 August.

Ming Ming (明明), chief economist with CITIC Securities, said to Securities Daily that PBOC could continue to establish more special re-loans or raise existing re-loan quotas in order to encourage banks to extend credit.

As external constraints gradually ease next year, Ming Ming sees considerable room for loosening of monetary policy via methods such as reductions in policy rates to cut the cost of financing for the real economy.

Feng Lin (冯琳), senior analyst with Golden Credit Ratings, said that in the fourth quarter PBOC would continue to further implement credit loosening measures that have already been unveiled, driving new growth in loans and maintaining year-on-year gains in total social financing.

“This will directly increase enterprise and household investment, consumer impetus and rouse market confidence,” Feng said.

“At the same time, regulatory agencies will continue to employ the role of loan prime rate reforms to guide banks in further reducing the financing costs of the real economy, and stimulate the independent financing demand of enterprises and households.”