(Bloomberg) -- The Chinese central bank will start lending money to banks under a new policy instrument in late January, the governor announced in an interview, promising that China will avoid both massive stimulus and a fast credit contraction.
The targeted Medium Term Lending Facility, which lends cash for up to three years, was announced in December and will encourage banks to lend to small and private companies which are facing credit shortages due to a government debt crackdown. China is trying to balance funneling more cash to the real economy without hampering its campaign to clean up excess debt and financial risk.
“China will stick to the main theme of structural deleveraging, properly tackle local governments’ debt risks, and continue to clean up overcapacity, debts and zombie firms,” Yi said in the interview with state-run Xinhua News. Financial risks which were exposed have been tackled in an orderly manner, the overall leverage ratio remains stable and financial risks are generally contained, he said.
“We are going to accurately control overall liquidity,” Yi said in the interview. “While avoiding overly rapid liquidity contraction which would shake the real economy, we should as well stay away from the flood-like stimulus which would hamper structural deleveraging.”
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