The Chinese Central Bank is trying to weaken its informal guidance Deposit rates for commercial lenders, allowing more flexibility of interest rate and increasing the issuance of loans to Chinese borrowers.
Christian rose – the people’s Bank of China (PBOC) is set to loosen its limit Deposit rates for commercial lenders in an attempt to give additional monetary liquidity in the economy. The movement takes place against the backdrop of increased tensions in trade with the United States, as Beijing seeks to increase domestic consumption, making it a key driver of the economy.
The planned transition of the Central Bank of China will relax the informal rules that it sets for commercial banks, prescribing the amount of interest lenders can repay the amount borrowed. This will allow more commercial interest exchange rate flexibility, that is, banks can increase their loan issuance is likely more affordable prices.
This happens as the people’s Bank of China continuing its efforts to suppress the ‘shadow lending, which was widely circulated in China since the recovery from the global economic crisis began in 2009. Thanks to the support of formal Bank lending, which is part of the regulatory framework of the Central Bank-people’s Bank of China in the hope of satisfying the appetite of borrowers for the lending schemes of the shadow’.
Recent changes in policy of the Bank will come after the national people’s Congress has appointed economist Yi gang as the new Governor of the Central Bank. Wow, candidate of economic Sciences at the University of Illinois and the government of China expects that his experience will help to rebuild the country’s financial system to reflect that the United States, making it more relies on the service sector rather than export-oriented production.
Impending policy changes people’s Bank of China has become particularly relevant in the light of recent developments in international trade of China. To put pressure on the President of the United States Donald trump’s ‘fair trade and mutual’ may cause interruptions in the export of China – not only in USA but also the largest trading partners of America as well.
This, in turn, could undermine the flow of investment to China. While the Chinese government is trying to reassure investors by imposing greater openness of its economy, the people’s Bank of China is preparing the basis for broader monetary stimulus, which could Finance its ambitious economic restructuring of Beijing.
In addition, Chinese officials have recently called for increased state investment in the domestic economy, not foreign exchange reserves. The people’s Bank of China recommended that the diversion of funds towards economic development at home from U.S. Treasury bonds.
“We are a country with a low level of income, but we are a high-wealth country. We should make better use of capital. Instead of investing in US government debt, it is better to invest in real assets,” – said a member of the people’s Bank of China Committee of monetary policy (MPC) fan gang said.
Fan also acknowledged that the high levels of debt in China, which exceeds approximately 200% of GDP and contains higher risks associated with a public debt of the province – can create problems for financial stability. The people’s Bank of China called for a prompt deleveraging, where possible, and additional Central Bank stimulus can help this problem.
“It is a serious problem and we need to restore order in the house. We have to contain this financial risk, but it will not be the cause of the financial crisis,” he said.
A fan said that despite China having the safety cushion up to 44% of GDP in the form of savings and foreign exchange reserves, it may not be sufficient to cover all liabilities in the event of a global economic crisis and a serious challenge for foreign trade.
However, Chinese officials stated that it is unlikely that the trade dispute with the US will lead to economic disaster.
“That China will cut its currency reserves, how politicians think, I don’t know. I personally think that this possibility is very small,” said Zhang.
While China is the largest foreign holder of US government debt – with the Treasury of the company stand at $1.17 trillion, and in January of this year, the Chinese Ministry of Finance has ruled out a sell-off in US government bonds, underlining its commitment to international long-term bonds investment rules.
In addition, as the Federal reserve system of the USA about 4.5 trillion $in its bloated balance sheet, the US Central Bank can absorb any significant sales of bonds in case of need, which may damage the reputation of China as a reliable lender.
While Beijing is unlikely interested in rocking the boat, quietly monetary stimulus the people’s Bank of China and broader economic reforms are expected to reduce the risks of the Chinese economy will face in the next few years.
Sourse: sputniknews.com
