China to ease financial conditions, steps up effort to boost lending

China’s central bank has started actively encouraging banks to extend more credit by taking a softer stance on loan quotas, people familiar with the matter said, as authorities ratchet up efforts to bolster a cooling economy.

The People’s Bank of China has delivered the message via so-called window guidance, said the people, who asked not to be named discussing private information. The central bank hasn’t provided specific targets, but it indicated a willingness to be more flexible on banks’ government-imposed lending caps, the people said.
 

While China has taken several steps to free up credit in recent weeks, the central bank’s latest interactions with lenders suggest official efforts have intensified. One executive at a large state-owned bank said the firm exceeded its year-to-date lending quota, judging that the PBOC would be less strict in enforcing the cap. A smaller bank focused on small-business lending had its quota raised by more than 50 percent in August from the previous month, a person with knowledge of the matter said.
 

Less than two years after Xi Jinping’s government began a campaign to curb risky lending practices and rein in China’s record debt burden, regulators are tapping the brakes on their crackdown as the $12 trillion economy slows and Donald Trump threatens to slap more tariffs on Chinese goods. More flexible quotas would make it easier for banks to boost small-business lending from the weakest pace in three years and offset an unprecedented contraction in China’s shadow-finance sector.

Increased lending would also help improve sentiment in the country’s equity and credit markets, which have slumped amid trade jitters and rising defaults.

“Loosening of lending will buttress the economy and prevent it from weakening further,” said Tang Jianwei, a Shanghai-based economist at Bank of Communications.
 

The PBOC couldn’t immediately comment when contacted by Bloomberg News. In a statement late on Wednesday following its semi-annual work conference, the central bank said it encourages financial firms to boost efforts to support the real economy and reduce financing costs.
 

Chinese authorities have already taken several steps to ease financial conditions and bolster the economy, while stopping short of broad-based fiscal or monetary stimulus.