PBOC praises special tools deployed to aid economy

Chinese monetary authorities are pleased with the achievements of their special tools launched nearly three months ago to offset the COVID-19 impact, according to the central bank. The bank again signaled that the two innovative credit supportive facilities will not be extended further, an official from the People's Bank of China, the central bank, told media on Thursday.

A new instrument created by the PBOC on June 1 to extend the repayment of principal and interest of small business loans to March 31 of next year has supported 506,000 enterprises and self-employed businesses and extended 1.44 trillion yuan ($208.4 billion) of loans by July, the PBOC said at the news conference.

It plans to extend 3.7 trillion yuan of the principles in inclusive finance-related small business loans, through providing 40 billion yuan of re-lending funds to small local banks via a special purpose vehicle (SPV), the central bank said in June.

"From the perspective of using the (loan extension) tool, it has achieved the effect that we desired," said Gao Fei, deputy head of the PBOC's financial markets department.

The other innovative monetary policy measure was the central bank using a quota of 400 billion yuan to buy up to 40 percent of loans extended by banking institutions to small and medium-sized companies every quarter until the end of the first half in 2021, which was effective since June.

These unconventional monetary responses to the COVID-19 impact have promoted the outstanding of small and micro loans to rise by 27.5 percent by the end of July, compared with a year earlier. That was a historic high, according to the PBOC official.

"We are also paying close attention to the effect of policy implementation and some new situations," said Gao. "At present, the policies are sufficient and appropriate. As the tools are temporary measures, designed for a certain period, they should be fine tuned and improved according to the actual changes in the market."

China's economic recovery momentum continued in July, following a V-shaped recovery in the second quarter, with accelerated growth of fixed-asset investment and retail sales.

In recent weeks, many companies indicated improved cash flows, and they showed no interest in extending loans, Gao said. "Generally, we have no plan to extend the (two) measures," he added.

The central bank sent signals recently that the monetary policy will be more flexible and more specific to give liquidity to corporates that are really in need of funding to survive the damage stemming from COVID-19, analysts said.

"We expect monetary policy, in terms of some major interest rates, including the seven-day reverse repo, one-year medium lending facility, and the loan prime rate, to remain the same for the rest of this year, as China's COVID-19 infection cases have been stabilized," said ING's chief economist Iris Pang.

She also expected that there will be no broad-based cut of the reserve recruitment ratio, but there could be targeted RRR cut or targeted re-lending for small and medium-sized enterprises and the agricultural sector.