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China central bank's new lending facility echoes earlier ECB, BOJ programmes
[FRANKFURT] 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 (PBOC) 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 (ECB) Targeted Longer-Term Refinancing Operations.
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 (Bank of Japan) 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 programme 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.