China revamps credit expansion as PBOC balance sheet shrinks

Bloomberg

While central bankers in Japan, Europe and US have struggled in recent years to stoke credit growth even as they grew their balance sheets to unprecedented size, the People’s Bank of China (PBOC) is succeeding, with a very different approach. For all the Communist Party’s rhetoric about giving a decisive role to markets, China’s financial system remains dominated by state-owned lenders. That’s come in handy as policy makers loosened monetary policy since 2014 to shore up a slowing economy. Officials can direct banks to make new loans or roll over existing ones. The PBOC has also been expanding support for “policy banks” that support government objectives.
“It’s more powerful and effective, as the PBOC and State Council have more power over banks,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong.

, referring to the central bank and the cabinet. “The money multiplier in China is under direct influence by the government and is much higher than other countries.”