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China Faces Problem in Getting Its Banks to Lend More Money

  • Looser monetary policy not passing from money market to firms
  • Clogged rates transmission reduces urgency of further RRR cuts
General Views Of Shanghai's Lujiazui Financial District
Photographer: Qilai Shen/Bloomberg
Updated on

The People’s Bank of China is tackling a problem it rarely had to worry about until recently -- persuading banks to lend the money they have.

Thanks to the central bank turning on the liquidity taps, the cost for banks to borrow from one another is now lower than the cost to borrow from the PBOC, but a large chunk of those funds is sitting idle. That money isn’t feeding into the wider economy, especially not to cash-strapped smaller firms, as lenders are unwilling to make loans or buy risky bonds.