China's central bank vows to boost credit support, stabilise money growth

China’s central bank chief vowed to stabilize the supply of credit and boost the amount of money supporting smaller businesses and the real economy, after both credit and economic growth slowed in July.

The People’s Bank of China will keep monetary policy stable with a good cross-cyclical design and will support high-quality economic expansion with “appropriate money growth,” according to a statement late Monday after a meeting with banks. The meeting analyzed monetary and credit conditions and was chaired by Governor Yi Gang.

Yi reiterated the PBOC “will basically match the expansion of money supply and social financing to nominal economic growth” and enhance the structure of credit to encourage more funding to technological innovation, green development, and small businesses. He called for efforts to push down real lending rates and financing costs for small companies.

The meeting comes after new credit expanded in July at the slowest pace since February 2020, driven by a sharp slowdown in shadow banking, government bond issuance and tighter rules for property developers’ financing. China’s economy decelerating more than expected in the same month, with the delta variant hitting retail sales and Beijing’s curbs on pollution and property markets weighing on industrial production.

Similar meetings to discuss credit usually happened in November in past years and the fact that it was held now reflects concerns from the PBOC over weak credit demand in the past few months, Qin Han, chief bond analyst at Guotai Junan Securities Co. Ltd. said in a report Tuesday. “Increasing the amount of credit and strengthening the growth of total credit is almost certainly going to happen.” 

China’s 10-year sovereign bond yields climbed for a third day to as high as 2.8825% in the morning trading session, the highest level in a week, on the heels of the meeting.

The PBOC also repeated the Politburo’s late July request to “coordinate macro policies for this year and next year.”

That means it will encourage banks’ lending to pick up slightly in the rest of 2021 and accelerate more significantly in early 2022, according to Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong. This will support an expected speedup in government bond issuance later this year and stimulate the economy when growth pressure is more acute next year, he said. 

Most analysts expect the PBOC to cut banks’ reserve requirements at least once in the rest of this year to provide liquidity to banks to repay maturing policy loans granted during the pandemic last year. China Renaissance’s Pang forecasts a cut in the fourth quarter to help guide lending rates lower.

China has no problem achieving its goal of growing the economy by more than 6% this year, and there will be greater pressure to stabilize growth in the first half of next year, according to Yin Zhongqing, deputy director of the financial and economic affairs committee of the National People’s Congress. Policies of different departments need to be more coordinated, he said, according to a Monday report in Liaowang Magazine, which is part of the official Xinhua News Agency.