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China's Central Bank Faces a Delicate Balancing Act

  • Corporate borrowing challenges could impact economy: Haitong
  • PBOC favors money-market tightening over increasing key rates
The People's Bank Of China headquarters stand at night in the financial district of Beijing.
Photographer: Tomohiro Ohsumi/Bloomberg
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China’s central bank faces a dilemma: Whether to raise borrowing costs and potentially undermine the nascent economic recovery, or hold firm and risk spurring capital outflows as Federal Reserve policy tightening cuts into the country’s interest-rate advantage.

The People’s Bank of China is trying to take the middle road, boosting money-market rates as a way of containing company leverage, while allowing bank borrowing to largely continue unchecked. At the same time, authorities have ramped up capital controls to quell outflows after the yuan’s biggest annual decline in more than 20 years.