A Chinese national flag flies outside the People’s Bank of China (PBOC) headquarters in Beijing, China. (Photographer: Qilai Shen/Bloomberg)

PBOC's New Lending Facility Echoes Earlier Programs by ECB, BOJ

(Bloomberg) -- China’s central bank reached into the toolkit of its peers around the world, announcing a new facility to encourage bank lending to companies that looks very similar to what others have done.

The People’s Bank of China is trying to balance competing demands of a debt crackdown and ensuring that banks lend to support growth. The clampdown has made it harder for small and private companies to borrow, and the new tool adds to measures announced recently which try to make it easier to raise money.

It’s “TLTROs with Chinese characteristics,” wrote Krishna Guha, the head of central bank strategy at Evercore ISI, referring to the European Central Bank’s Targeted Longer-Term Refinancing Operations.

PBOCECBBOEBOJ
NameTargeted Medium-Term Lending FacilityTargeted Longer-Term Refinancing OperationsTerm Funding SchemeLoan Support Program
DurationUp to three years (two roll-overs of one-year loans)Up to four yearsUp to four yearsUp to four years
Size as of December 2018Not announced722 billion euros ($828 billion)121 billion pounds ($154 billion)38.2 trillion yen ($342 billion)
AnnouncedDec. 2018June 2014/ March 2016August 2016June 2010

According to Gene Ma, chief China economist at the Institute of International Finance in Washington, the PBOC’s main focus is not the stance of monetary policy but on impairments in the transmission mechanism. This new policy shows they’re moving to tackle that, he said.

Across the Sea of Japan, the BOJ’s similar scheme had “some positive impact since it gives a certain amount of relief to markets when central banks take the other side of a transaction,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo.

However, financial conditions in Japan are very different to those in China. For the BOJ, the problem is a lack of loan demand, and that hasn’t changed markedly even after years of unconventional monetary policies.

In China, there is much more demand for loans, but many borrowers can’t get access to them. So this new program may provide some help for small, private companies.

“If slowing credit growth to corporates reflects small Chinese firms struggling to access credit in response to past policy measures to curb the shadow banking system, these measures could be supportive for credit and wider economic growth,” said Ben May, director of global macro research at Oxford Economics.

What Our Economists Say...

“There are continued difficulties in spurring an increase in lending. Inertia at the local level in policy implementation and misaligned incentives discouraging front-line officers from lending may take time to rectify. It may still take a few months for credit expansion to increase at a strong enough pace to stabilize growth.”

--Chang Shu and David Qu, Bloomberg Economics. Read the full REACT

©2018 Bloomberg L.P.