PBOC Vows to Walk Fine Policy Line as Debt Endangers Growth

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China’s central bank said it will walk a fine line in its policy operations to avoid excessive easing as rising debts endanger the nation’s economic expansion.

“We will prevent excessive easing to avoid cementing economic distortion or pushing up debt and leverage levels; on the other hand, we will create a neutral and appropriate monetary environment” for growth, the People’s Bank of China said in its monetary policy report published on Friday.

The bank also said that China’s exports won’t see big improvement, hours after data showed an unexpected fall in overseas shipments in April. The central bank has cut benchmark interest rates and banks’ reserve ratios twice in the last six months to cushion an economic slowdown, and economists forecast further monetary policy easing.

“Economic growth is, to a large extent, still relying on government-led investment, and the room for further expansion is quite limited,” the central bank said. “In addition, the rising debt size is forcing China to use a lot of resources in repaying and rolling over debt, which leads to contraction effects for the macro economy.”

China’s total debt has reached 282 percent of GDP, according to the McKinsey Global Institute.

The PBOC put one foot on the accelerator and another on the brake last month with its new liquidity tools. On one hand, it allowed a 170 billion yuan ($27 billion) credit line to banks via its Standing Lending Facility mature in April. On the other, it injected 65 billion yuan via its Medium-term Lending Facility, according to central bank data released Friday.

— With assistance by Xin Zhou

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