Economics: PBoC balance sheet confusion

The PBoC’s assets have increased sharply in recent months. 

The People’s Bank of China’s (PBoC) assets jumped by $390bn in Q4. Some think this liquidity found its way into global asset markets. But there’s little scope for renminbi liquidity to leak abroad, and Chinese monetary conditions didn’t loosen anyway.  

It wasn’t due to quantitative easing or anything along those lines.

Most of the increase in PBoC assets came from two sources. It ramped up its re-lending to banks because loan demand was falling short of its target. And it stepped up its open-market operations to alleviate a funding crunch in the money and credit markets.

We don’t expect a major credit cycle this year.

Neither suggests an effort to stimulate a major credit cycle. In fact, its primary policy target is to hold the credit-to-GDP ratio steady. So if re-opening leads to stronger loan demand, the PBoC will have to lean against it in the coming months.