PBOC Research Unit's Ma Jun Shoots Down Claims About China QE

The People’s Bank of China’s expansion of a program allowing lenders to use credit assets as collateral when borrowing funds from the central bank isn’t a version of quantitative easing, according to the top economist at the PBOC’s research department.

The policy won’t have a significant impact on overall liquidity conditions, Ma Jun wrote in an e-mailed statement. The note is in response to market commentary that the measure would release 7 trillion yuan ($1.1 trillion) of liquidity, said Ma, who uses such missives to flesh out reasoning behind policy moves or clear up misconceptions.

The new rule aims to remove "obstacles" for the PBOC as it seeks to provide liquidity support to local financial institutions without enough collateral to use the PBOC’s relending facility, which provides low cost funding for lending to rural areas and small size enterprises. The PBOC has cut interest rates five times since November to counter deflationary pressure and slowing economic growth and used a variety of liquidity tools to channel funds to designated areas of the economy.

Commercial banks are required to provide collateral before they can receive cash from the PBOC, either in open market operations or targeted liquidity injections. Previously, only government bonds, central bank notes, policy bank bonds and highly rated corporate bonds were qualified by the PBOC.

Local lenders will benefit from the new rules as they’ll now have more options when providing collateral to receive money from the PBOC. Big banks with ample holdings of highly rated bonds are less affected, Ma said.

China’s growth target for M2 money supply remains at 12 percent for the year, Ma said. China has a range of policy tools to provide liquidity and re-lending is just one of those options, he said.

"It would be wrong to assume that all local financial institutions would necessarily get a credit line from the PBOC," he said.

Ma joined the PBOC in April 2014 in the newly created post of chief economist of the bank’s research department, having previously been China economist at Deutsche Bank AG in Hong Kong. While Ma provides commentary in his role within the research bureau, that unit doesn’t set policy.

— With assistance by Zheng Wu, and Jeff Kearns

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