Archive for ‘People’s Bank of China (PBOC)’

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22/03/2020

China scrambles to curb rise in imported coronavirus cases

BEIJING (Reuters) – China on Sunday reported 46 new cases of coronavirus, the fourth straight day with an increase, with all but one of those imported from overseas, and further stepped up measures to intercept cases from abroad as the outbreak worsens globally.

While China says it has drastically reduced the number of domestically transmitted cases – the one reported on Sunday was the first in four days – it is seeing a steady rise in imported cases, mostly from Chinese people returning from overseas.

In a sign of how seriously China is taking the threat of imported cases, all international flights due to arrive in Beijing starting Monday will first land at another airport, where passengers will undergo virus screening, government agencies said on Sunday, in an expansion of existing measures.

International flights that were scheduled to arrive in the capital will land instead at one of 12 airports. Passengers who clear screening will then be permitted to reboard the plane, which will then fly to Beijing, the regulator said.

Separately, Shanghai and Guangzhou both announced that all arriving international passengers will undergo an RNA test to screen for coronavirus, expanding a program that previously only applied to those coming from heavily-hit countries.

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Among the new cases from abroad reported on Sunday, a record 14 were in the financial hub of Shanghai and 13 were in Beijing, a decline from 21 the previous day.

The new locally transmitted case was in the southern metropolis of Guangzhou and was also the first known case where the infection of a local person was linked to the arrival of someone from overseas, according to Guangdong province.

Hu Xijin, the editor-in-chief of the Global Times newspaper, called for all cities in China to implement 14-day quarantines for people arriving from abroad.

He also called for quarantine policies to apply to people from Hong Kong and Macau as well, he said on his Weibo account on Sunday.

“I am worried that there are similar cases to the Guangzhou one existing in other parts of the country. There were reports previously that people coming back from abroad returned to their homes in Shanghai without any obstacles,” Hu said.

“It matters to the overall situation of China’s next prevention and control efforts if we can plug the leaks.”

The Global Times is a tabloid published by the Ruling Communist Party’s People’s Daily.

The latest figures from China’s National Health Commission bring total reported coronavirus cases in the country to 81,054, with 3,261 deaths, including six on Saturday. On Saturday, China reported 41 new coronavirus cases for the previous day, all of them imported.

Of all 97 imported cases as of end-Saturday, 92 of them are Chinese nationals and 51 are Chinese students returning from studying abroad, said Gao Xiaojun, spokesman for the Beijing Municipal Health Commission during a press conference on Sunday.

The Beijing health commission announced separately on its website it had two more imported cases on Sunday, bringing the city’s total number of imported cases to 99 as of Sunday noon.

BACK TO A KIND OF NORMAL

China is trying to revive an economy that is widely expected to contract deeply in the current quarter, with life slowly returning to normal in cities such as Beijing and Shanghai, albeit with everyone wearing masks in public.

Still, numerous shops and restaurants remain shut – many have gone out of business – and factories and other workplaces are still not operating at full capacity.

On Sunday, a central bank official called for stepped-up global policy coordination to manage the economic impact of the pandemic. He said China’s recent policy measures were gaining traction, and it has capacity for further action.

Chen Yulu, a deputy governor at the People’s Bank of China (PBOC), also said he expects significant improvement in the Chinese economy in the second quarter.

And while the virus will continue putting upward pressure on near-term consumer prices, there is no basis for long-term inflation or deflation, he told a news briefing.

Globally, roughly 275,000 people have been infected with the virus, and more than 11,000 have died, according to a Reuters tally, with the number of deaths in Italy recently surpassing those in China.

“Now I think the epidemic has been controlled. But this definitely doesn’t mean that it’s over,” said a 25-year-old woman surnamed He who works in the internet sector and was visiting the vast Summer Palace complex in Beijing on Saturday.

“I’m willing to come out today but of course I am still afraid,” she told Reuters.

The central province of Hubei, where the outbreak first emerged late last year in its capital Wuhan, reported its fourth straight day of no new cases.

China has used draconian measures to contain the spread of the virus, including locking down Hubei province.

Source: Reuters

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12/03/2020

Coronavirus: China should not rely on massive stimulus to overcome ‘unprecedented’ economic slowdown

  • In response to the 2008 global financial crisis, China pumped a 4 trillion yuan (US$575 billion) into its economy but it led to a mountain of local government debt
  • Various early indicators suggest China’s economy will slow in the first quarter of 2020, with some suggestions it will suffer a first contraction since 1976
President Xi Jinping said China must accelerate construction of “new infrastructures such as 5G networks and data centres” on top of speeding up “key projects and major infrastructure construction” in response to the economic impact caused by the coronavirus outbreak. Photo: Xinhua
President Xi Jinping said China must accelerate construction of “new infrastructures such as 5G networks and data centres” on top of speeding up “key projects and major infrastructure construction” in response to the economic impact caused by the coronavirus outbreak. Photo: Xinhua

China should not try to bolster its coronavirus-hit economy by again resorting to a massive debt-fuelled fiscal and monetary stimulus programme, according to a group of government advisers.

Various early indicators suggest China’s economy will slow in the first quarter of 2020, with some even suggesting it will suffer a first contraction since the end of the Cultural Revolution in 1976.

This raises the question if China will miss its key 2020 growth target, with voices on both sides of the debate discussing what stimulus policies are needed to offset the deep impact of the coronavirus.

China is already leaning towards some additional stimulus, with Premier Li Keqiang ordering the central bank pump additional money into the banking system, while President Xi Jinping has announced the need for more spending on “new infrastructure”.

Are there other ways out for China except stimulus policies?Liu Shijin

“Are there other ways out for China except stimulus policies?” rhetorically asked Liu Shijin, who previously worked closely with Vice-Premier Liu He, the top economic aide to Xi, at the Development Research Centre, the think tank attached to the State Council.

“If it really works, why can’t Japan and the United States reach a 5 per cent growth rate?”
It is believed China will need to achieve an average 5.6 per cent growth in 2020 to achieve its goal of doubling the size of its economy from 2010, which is a key goal for

Xi to achieve his target

of creating a “comprehensively well-off” society.

China’s economy grew by 6.1 per cent in 2019, and while it was the slowest in 29 years, the US economy only grew 2.3 per cent, with Japan’s estimated to grow by 0.9 per cent.
What is gross domestic product (GDP)?
Liu Shijin, who is now a deputy head of the China Development Research Foundation and a policy adviser to the People’s Bank of China, argued that a growth rate averaging 5 per cent over the next decade is sufficient for China to meet its development goals.

Growth in 2020, though, may well be below 5 per cent given that the impact of the coronavirus is “unprecedented” and larger than both severe acute respiratory syndrome (Sars) in 2003 and the 2008 global financial crisis.

Xi said earlier this month that China must accelerate construction of “new infrastructures such as 5G networks and data centres” on top of speeding up “key projects and major infrastructure construction already included in state plans” like additional high-speed railway lines in response to the economic impact caused by the coronavirus outbreak.
But as this will mainly rely on corporate and private investment, Liu Shijin feels it will be too small to engineer a major rebound in the growth rate.
When encountering challenges, we should first push forward new reform measures to unleash growth potential. Now is the right timeLiu Shijin
“It’s a different thing compared to real [government-led] economic stabilisation,” Liu Shijin told a web seminar hosted by Peking University’s National School of Development on Wednesday.

“When encountering challenges, we should first push forward new reform measures to unleash growth potential. Now is the right time.”

Instead, to support longer-term growth, China should put its efforts into the development of its “city clusters”, which could lead to higher spending on housing construction, urban infrastructure and manufacturing, added Liu Shijin, which would increase the growth rate by up to an additional percentage point over the next decade.

China has so far refrained from the massive stimulus programme it adopted in 2008 in response to the global financial crisis, which included a 4 trillion yuan (US$575 billion) plan that pumped cheap money into government-backed projects but also created a mountain of local government debt.

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Zhang Bin, a senior researcher at the Chinese Academy of Social Sciences, said infrastructure construction will remain an important part of any plan to support growth.

“If the funding [for the 4 trillion yuan stimulus] had come solely from treasury bonds or local government bonds [rather than risky lending], there wouldn’t be so much shadow banking, unmanageable credit expansion, high leverage, implicit liabilities or financial risks,” he said.

“If the balance sheets of corporations, households and local governments can’t be repaired, it might lead to insufficient demand and a decline into a vicious [downward] cycle.”

Zhang, like Liu Shijin, is a key member of the China Finance 40 Forum, a group of state economists who advocate more structural reforms to support the Chinese economy. In particular, Zhang has set sights on reforms that would boost consumption, which accounted for 58 per cent of Chinese growth last year.

“The biggest weak link of the Chinese economy is that 200 to 300 million migrant workers can’t [legally] settle in big cities,” he said. “Only if they are able to settle in the city that China can be called a real well-off society. It will also boost the economy, lift demand for manufactured goods and unleashed consumption potential.”
Currently, most large Chinese cities only provide social services including health care and schooling to residents who have a legal permit, or hukou. Most migrant workers who come to the big cities for jobs are blocked from obtaining a hukou, meaning they have to travel back to their rural hometowns to have access to basic social services, so often do not settle in their adopted city.
In response to this idea, Xu Yuan, a professor at Peking University, called for the government to build 10 million affordable housing units annually to accommodate new urban citizens, which would address short-term economic pain and serve the nation’s long-term development.
China will release its annual growth target as well as other key goals, including the fiscal deficit ratio and local bond quota, at the National People’s Congress, although the annual parliamentary convention, previously scheduled for March 5, has been postponed, with a new date yet to be announced.
Source: SCMP

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22/02/2020

China reports fall in new coronavirus cases but concerns grow over rising global spread

BEIJING (Reuters) – China reported a sharp decrease in new deaths and cases of the coronavirus on Saturday but a doubling of infections in South Korea and 10 new cases in Iran added to unease about its rapid spread and global reach.

Mainland China had 397 new confirmed cases of coronavirus infections on Friday, down from 889 a day earlier, but only 31 cases were outside of the virus epicentre of Hubei province, the lowest number since the National Health Commission started compiling nationwide data a month ago.

But infection numbers continued to rise elsewhere, with outbreaks worsening in South Korea, Italy and Lebanon and Iran, prompting a warning from the World Health Organization that the window of opportunity to contain the international spread was closing..

South Korea saw another spike in infections, with 229 new confirmed cases, taking its tally to 433. Officials warned that could rise substantially as more than 1,000 people who attended a church at the centre of the outbreak had shown flu-like symptoms.

Iran, which had no reported cases earlier this week, saw 10 new cases, one of which had died, taking the number to 28 infections and five deaths.

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Concerns about the virus weighed on U.S. stocks on Friday, driven by an earlier spike in cases in China and data showing stalling U.S. business activity in February. [MKTS/GLOB]

It has spread to some 26 countries and territories outside mainland China, killing 13 people, according to a Reuters tally.

WHO director-general Tedros Adhanom Ghebreyesus on Twitter expressed concern on Saturday about cases with no clear link to China and called on all countries to invest urgently in preparedness. He made an appeal for $675 million to support the most vulnerable countries.

On Friday, he said now was the time to act decisively.

“We still have a chance to contain it,” he said. “If we don’t, if we squander the opportunity, then there will be a serious problem on our hands.”

An outbreak in northern Italy worsened with its first two deaths, among 17 confirmed cases including its first known instance of local transmission.

Japan confirmed 14 new coronavirus cases on Saturday, among those a teacher who had shown symptoms while working at her school.

Japan is facing growing questions about whether it is doing enough to contain its spread, and concern about whether it could scupper this year’s Tokyo Olympics. Organisers on Saturday postponed the start of training for volunteers as a precaution.

The Bank of Japan’s governor on Saturday shrugged off talk that the widening epidemic is triggering an outflow of funds from Asia.

Online site for coronavirus news – here

GRAPHIC: Tracking the novel coronavirus – here

NEW COMPLICATIONS

The total number of confirmed cases in mainland China rose to 76,288, with the death toll at 2,345 as of the end of Friday. Hubei reported 106 new deaths, of which 90 were in Wuhan.

But new, albeit isolated findings about the coronavirus could complicate efforts to thwart it, including the Hubei government’s announcement on Saturday that an elderly man took 27 days to show symptoms after infection, almost twice the presumed 14-day incubation period.

That follows Chinese scientists reporting that a woman from Wuhan had travelled 400 miles (675 km) and infected five relatives without showing signs of infection, offering new evidence of asymptomatical spreading.

State television on Saturday showed the arrival in Wuhan of the “blue whale”, the first of seven river cruise ships it is bringing in to house medical workers, tens of thousands of which have been sent to Hubei to contain the virus.

Senior Chinese central bank officials sought to ease global investors’ worries about the potential damage to the world’s second-largest economy from the outbreak, saying interest rates would be guided lower and that the country’s financial system and currency were resilient.

Chen Yulu, a deputy governor of the People’s Bank of China, said policymakers had plenty of tools to support the economy, and were fully confident of winning the war against the epidemic.

“We believe that after this epidemic is over, pent-up demand for consumption and investment will be fully released, and China’s economy will rebound swiftly,” Chen told state television.

China has recently cut several key lending rates, including the benchmark lending rate on Thursday, and has urged banks to extend cheap loans to the worst-hit companies which are struggling to resume production and are running out of cash.

The transport ministry said businesses would resume operations on a larger scale later this month and said more roads, waterways and ports were returning to normal.

Online media and Weibo users posted footage and images on Saturday of some malls reopening, including in the cities of Wuxi, Hangzhou and in Gansu province, with shoppers queuing in near-empty streets outside for mandatory temperature checks as trickles of customers in masks perused luxury goods shops and makeup counters.

Some analysts believe China’s economy could contract in the first quarter from the previous three months due to the combined supply and demand shocks caused by the epidemic and strict government containment measures. On an annual basis, some warn growth could fall by as much as half from 6% in the fourth quarter.

However, transport restrictions remain in many areas and while more firms are reopening, the limited data available suggests manufacturing is still at weak levels, with disruptions starting to spillover into global supply chains.

Samsung Electronics (005930.KS) said on Saturday that one coronavirus case had been confirmed at its mobile device factory complex in Gumi, causing a shutdown of its entire facility.

Finance leaders from the Group of 20 major economies were set to discuss risks to the world economy in Saudi Arabia this weekend.

The WHO’s Tedros on Twitter said 13 priority countries in Africa had been identified for help because of their direct links to China or high travel volume. That would include 30,000 personal protective kits on the way to six countries and 60,000 more for 19 states in the weeks ahead.

Source: Reuters

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30/08/2019

Is China set to beat Facebook’s Libra by launching its digital currency this autumn?

  • ‘Forbes’ magazine reported that China’s central bank will launch its own sovereign digital currency to coincide with the Singles’ Day online shopping festival
  • The People’s Bank of China is seeking to address financial risks and counter the current dominance of the US dollar
The Singles' Day is a holiday celebrated in China on November 11 and has become the largest online shopping day in the world. Photo: Simon Song
The Singles’ Day is a holiday celebrated in China on November 11 and has become the largest online shopping day in the world. Photo: Simon Song

China’s desire to launch the world’s first government-backed digital currency could see the possible rival to Facebook’s Libra be launched in time for November’s Singles’ Day online shopping festival despite a Chinese media report playing down the timing as “inaccurate speculation”.

Several central bank officials have publicly spoken out over the past several weeks about the need for China to launch its own digital currency since Facebook unveiled its plans for Libra, and the People’s Bank of China (PBOC) appear to be making rapid progress ahead of an expected launch.

Forbes magazine reported this week, citing a source who previously worked for the Chinese government, that China’s central bank could launch the digital currency as soon as November 11 as its bids to address financial risks and to counter the current dominance of the US dollar.

The PBOC did not respond to a faxed request for comment on the Forbes story, although Sina.com said that the report was “inaccurate speculation” citing an unnamed source close to the central bank.

China’s central bank is expected to distribute its digital currency through the big four state-owned banks – the Industrial and Commercial Bank of China, China Construction Bank, the Agricultural Bank of China, and the Bank of China – and mobile payments systems Alipay and WeChat Pay, as well as UnionPay, the state-supported credit card provider, according to the Forbes report. Alibaba is the owner of the South China Morning Post.
Ma Changchun, deputy chief of the Payment and Settlement Division of the PBOC, said at the start of August that a digital currency prototype existed and that the central banks’ Digital Money Research Group had already fully adopted blockchain architecture to ensure its use in retail transactions.

“The People’s Bank digital currency can now be said to be ready,” said Ma on August 11.

The People’s Bank digital currency can now be said to be ready Ma Changchun
Former central bank governor Zhou Xiaochuan said last month that, in addition to central banks, “commercial entities” should be allowed to issue banknotes backed by their own private currency assets, although he did not elaborate on what kind of “commercial entities” might be appropriate to issue a digital currency in China.

China is also ready to make Shenzhen a pilot zone for digital currency as part of plans for the city to become a socialist model city, according to a statement summarising a meeting between the Shenzhen party secretary Wang Weizhong and central bank governor Yi Gang released on Thursday.

The PBOC implemented a blanket crackdown in China on trading of cryptocurrency, including bitcoin, which are not backed by any government, viewing them as risks to China’s financial stability and security. At the same time, in 2014 the central bank created its own academy to study digital currencies and the related blockchain technology.

Neil Woodfine, director of marketing at blockchain start-up Blockstream, said a digital currency created by the PBOC would be “just like cash” and “would be fully controlled by the central bank.”

“If it’s digital instead of physical, they can close accounts and monitor all activities [in the entire financial system]. Commercial bank deposits are difficult for them to monitor, control or pull information out of for verification because the numbers are in each bank’s data centre,” Woodfine said.

Wang Xin, director of the central bank’s research bureau, said last month that

Facebook’s plans 

to create its own digital currency have pushed Beijing to speed up its own digital currency plan as Libra could potentially pose a challenge to Chinese cross-border payments, monetary policy and even financial sovereignty.

Leonhard Weese, the president of the Bitcoin Association of Hong Kong, said that a government-backed digital currency may enhance the PBOC’s control of China’s monetary system, cutting reliance on commercial banks to transmit changes in monetary policy.
“It would be similar to just killing the commercial banks,” Weese said.
Facebook’s Libra,

which would be a non-sovereign digital currency controlled by a Swiss-based company, has come under intense scrutiny by regulators and central banks worldwide. Last month, the Group of Seven industrialised nations, known as the G7, called for urgent regulatory measures and other types of action to address serious concerns over Libra.

Central banks, however, have expressed interest in launching their own digital currencies to counter the US dollar and to gain more control of their own monetary systems.
Mark Carney, governor of the Bank of England, argued last week that the US dollar, the current dominant reserve currency, could be replaced by a global digital alternative to tackle ultra-low interest rates.
Facebook’s Libra, which is expected to be launched next year, will be pegged to a basket of convertible currencies – so it could serve as a stable online currency – while its payments will be endorsed by Visa and Mastercard. Photo: Reuters
Facebook’s Libra, which is expected to be launched next year, will be pegged to a basket of convertible currencies – so it could serve as a stable online currency – while its payments will be endorsed by Visa and Mastercard. Photo: Reuters

A digital currency “could dampen the domineering influence of the US dollar on global trade”, Carney said last week at the US Federal Reserve’s annual conference, adding that a digital currency has the edge to counter shocks emanating from the US through trade and exchange rates.

Daniel Wang, chief executive and co-founder of blockchain start-up Loopring, said that a Chinese government-backed digital currency may provide a new way for the yuan to compete globally.

“If the central bank wants to increase the global competitiveness of the yuan through its digital currency, only an open and standard-based competitor carries any hope,” said Wang.

A digital yuan would “remain a sovereign currency under a centralised sovereign,” continuing to require the trust from users in the Chinese central bank and government institutions behind it, Wang added.

Alfred Schipke, senior resident representative for China at the International Monetary Fund (IMF), said that the bank is “open” to digital currencies, including the one being developed by China’s central bank.

The IMF in principle is looking at these things favourably. It’s a two-way process where we learn from China, which is often at the forefront of development. Alfred Schipke

“We don’t have a specific view on a particular currency, we haven’t looked at the details of the latest proposals from China,” Schipke said on Thursday. “The IMF in principle is looking at these things favourably. It’s a two-way process where we learn from China, which is often at the forefront of development.”
Blockstream’s Woodfine said that Beijing’s move also reflects a growing concerns among central banks that a financial disaster is on the horizon.
The 30-year US Treasury bond yield fell to an all-time low 1.976 per cent on Thursday, while yields around the world also plunged to multi-year or record low, triggering rising fears over a global recession.
Central banks around have also been driving down interest rates, with the PBOC recently unveiling a key interest rate reform that effectively cuts borrowing costs for companies to boost its slowing economy.
“We’ll see a move by governments and central banks to take back control over the financial system and use that power to direct their economies, continuing to pump money into the system to keep it afloat,” Woodfine added.
“A digital currency would be the perfect channel for helicopter money,” he said in reference to the idea that a central bank could stimulate the economy by giving out large quantities of money to the public, as if dumped from the sky. “They can send out free money to consumers.”
Source: SCMP

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17/06/2019

Chinese Vice-Premier Liu He says ‘external pressure’ can actually help China’s economy

  • President Xi Jinping’s chief US trade war negotiator did not specifically reference rising tensions with United States during surprise speech in Shanghai
  • Keynote address at Lujiazui financial forum his first public appearance in three weeks since tour of Jiangxi province with Xi
The keynote address by Liu He (second left) at the Lujiazui financial forum in Shanghai on Thursday was his first public appearance in three weeks. Photo: Xinhua
The keynote address by Liu He (second left) at the Lujiazui financial forum in Shanghai on Thursday was his first public appearance in three weeks. Photo: Xinhua
Vice-Premier Liu He believes the “external pressure” now hitting China’s economy was inevitable and could actually boost the country’s innovation and development.
Liu, the top economic aide to President Xi Jinping and chief negotiator in the trade talks with the United States, backed up comments last week from

People’s Bank of China governor Yi Gang

that Beijing has sufficient policy tools to address the risks and challenges to ensure that China’s long-term growth prospects remain sound.

He did not directly mention the US-China trade war in remarks at the Lujiazui financial forum on Thursday, but said that there was ample room in China’s macroeconomic system to support growth and that recent moves by the government to cut taxes and government administrative fees were starting to have a positive impact on the economy.

“We do face some external pressure at the moment, but this is the inevitable test that China’s economic upgrade must experience,” Liu told the forum, which is an annual event organised by the Shanghai government and the People’s Bank of China. “The external pressure will help us improve innovation and self-development, speed up reform and opening up and push forward with high quality growth.”

Liu was critical of economists for focusing solely on monthly economic data that has shown signs of weakness in the Chinese economy, while neglecting positive trends that support long-term growth in the world’s second largest economy.

Chinese employment, consumer prices and the balance of payment remained at “reasonable” levels, he said, although 

China’s consumer price index

did rise to the highest level in 15 months in May, partly because of the rising price of pork and fresh fruit.

“No matter what happens temporarily, China’s long-term growth remains positive, which won’t change,” Liu said. “After the global financial crisis, our financial system has been stable. The rapid growth of debt in the system has been contained.”

The keynote speech, which was Liu’s first public appearance since accompanying Xi on a tour of Jiangxi province three weeks ago, was only confirmed at the last minute having initially been announced as a speech by “a State Council leader”.

The external pressure will help us improve innovation and self-development, speed up reform and opening up and push forward with high quality growthLiu He

In an unusual move, Liu used charts and slides, both in Chinese and English, to address Chinese and foreign bankers and investors as well as other Chinese officials including Banking and Insurance Regulatory Commission chairman Guo Shuqing and People’s Bank of China governor Yi.
It remains to be seen whether Liu will resume trade talks on China’s behalf, with a meeting between 
Xi and US counterpart Donald Trump

at the G20 summit at the end of June yet to be confirmed after negotiations broke down in early May.

“We noticed that the US side had repeatedly expressed the hope that the two presidents could meet during the G20 summit later this month. Right now I have no new information to offer about the China-US trade talk,” said Chinese Ministry of Commerce spokesman Gao Feng during Thursday’s regular press conference.
“Nothing is agreed until everything is agreed.”
Since the last round of talks in Washington, which were attended by Liu, the US has increased tariffs on US$200 billion of Chinese goods from 10 per cent to 25 per cent, while Trump has threatened to impose tariffs on the US$300 billion worth of imports not yet covered by duties.
“The US used state power to suppress Chinese enterprises and generalise the concept of national security. These are the behaviours of distorting the market,” Gao added.
“It was the US who reneged and was dishonest in the trade talks, unilaterally escalated the trade tensions and made the negotiation fall into an impasse.”

Source: SCMP

Posted in Banking and Insurance Regulatory Commission, China’s economy, Chinese Ministry of Commerce, Chinese Vice Premier Liu He, external pressure, Jiangxi Province, Lujiazui financial forum, People’s Bank of China (PBOC), President Xi Jinping, Shanghai, Uncategorized, United States, US trade war negotiator | Leave a Comment »

10/03/2019

China central bank pledges more policy support as bank lending slides

BEIJING (Reuters) – China’s central bank on Sunday pledged to further support the slowing economy by spurring loans and lowering borrowing costs, following data that showed a sharp drop in February’s bank lending due to seasonal factors.

The central bank is widely expected to ease monetary policy further this year to encourage lending especially to small and private firms vital for growth and job creation.

The central bank’s “prudent” monetary policy will emphasize on counter-cyclical adjustments, said People’s Bank of China (PBOC) Governor Yi Gang, using a phrase that implies the need to fight an economic slowdown.

“The global economy still faces some downward pressure and China faces many risks and challenges in its economy and financial sector,” Yi said at a press conference on the sidelines of the country’s annual meeting of parliament.

There is still some room for the PBOC to cut reserve requirement ratios (RRRs), although the amount of room is less compared with a few years ago, Yi said.

Chinese banks made 885.8 billion yuan ($131.81 billion) in net new yuan loans in February, down sharply from a record 3.23 trillion yuan in January, when several other key credit gauges also picked up modestly in response to the central bank’s policy easing.

Yi said combined January-February new loans and total social financing (TSF), a broad measure of credit and liquidity in the economy, could paint a more accurate picture as they showed a rise of 374.8 billion yuan and 1.05 trillion yuan from a year earlier, respectively.

DEBT DEFAULTS

Analysts say China needs to revive weak credit growth to help head off a sharper economic slowdown this year, but investors are worried about a further jump in corporate debt and the risk to banks as they relax their lending standards.

Corporate bond defaults hit a record last year, while banks’ non-performing loan ratio notched a 10-year high.

Pan Gongsheng, a vice governor at the PBOC, told the same briefing that China will control the amount of bond defaults in 2019, using both legal and market means.

Pan conceded that bond defaults increased last year, but the level of defaults was not high compared with China’s average bad loan ratio.

Premier Li Keqiang told parliament on Tuesday that monetary policy would be “neither too tight nor too loose”. Li also pledged to push for market-based reforms to lower real interest rates.

Chinese policymakers have repeatedly vowed not to open the credit floodgates in an economy already saddled with piles of debt – a legacy of massive stimulus during the global financial crisis in 2008-09 and subsequent downturns.

Sources have told Reuters the central bank is not ready to cut benchmark interest rates just yet, but is likely to cut market-based rates.

Yi said the downward trend in TSF has been initially curbed and broad M2 money supply growth will be more or less in line with nominal gross domestic product growth in 2019, Yi added.

Central bank data showed growth of outstanding TSF, a rough gauge of broad credit conditions, slowed to 10.1 percent in February from January’s 10.4 percent, versus a record low of 9.8 percent in December.

M2 money supply grew 8.0 percent in February from a year earlier, missing forecasts, the central bank data showed. Yi said China’s macro leverage ratio, or the amount of debt relative to GDP, was at 249.4 percent at the end of 2018, a fall of 1.5 percentage points from a year earlier, Yi said.
Analysts note there is a time lag before a jump in lending will translate into growth, suggesting business conditions may get worse before they get better.
Most economists expect a rocky first half before conditions begin to stabilize around mid-year as support measures begin to have a greater impact.
China’s economic growth is expected to cool to around 6.2 percent this year, a 29-year low, according to Reuters polls.
Growth slowed to 6.6 percent last year, with domestic demand curbed by higher borrowing rates and tighter credit conditions and exporters hit by the escalating trade war with the United States.
Source: Reuters

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