China Attempts to Stimulate Economy through Central Bank

China is taking a proactive position by utilizing monetary policy to steer its economy in uncertain climates for growth and trade. The People’s Bank of China (PBOC) Governor Yi Gang is allowing China’s central bank to reduce the percentage of funds banks must keep on reserve with it, in order to free up money for lending.

The cut in reserve requirements is meant to support growth as expansion slows and a trade war heats up. China’s central bank is freeing up more than $100 billion for commercial banks to boost lending and restructure debt. The monetary economics used by the Chinese central bank is similar in nature to that of the U.S. Federal Reserve. The caveat is that unlike the large public money center banks in the U.S., the so-called Big Five banks in China are state-run, and are getting the lion’s share of the monetary easing. The PBOC said the banks are to use the freed-up funds to convert bad loans into equity in companies that default on their debts. The remainder of funds in smaller commercial banks will be used to expand lending to small businesses, the central bank said in the statement. “China is on the way toward monetary easing,” said Zhu Chaoping, a Shanghai-based global market strategist at J.P. Morgan Asset Management.

China’s massive debt burden is back in focus, and threatens the world’s second largest economy. The PBOC’s attempt in the short term to enhance growth through monetary easing will likely be scrutinized by investors. Last March, credit rating agency Moody’s downgraded China, warning that the country’s financial health is suffering from rising debt and slowing economic growth. It’s the first time the agency has cut China’s rating in nearly three decades

The Chinese government is well aware it has a problem. Authorities have introduced a series of measures in recent years to tackle government debt and bad bank loans. They have also tried to reduce the economy’s dependence on credit as a way to fuel growth. Many experts say more needs to be done. Corporate debt in China soared to around 170 percent of GDP in 2016, roughly double the average of other economies, according to the Bank of International Settlements. In 2008, China’s figure stood at about 100 percent.  Analysts attribute growing debt to inefficiently run large state owned corporations. There is little incentive to maximize shareholder wealth, as the profits go to the state. As with the U.S. Fed, there is a balancing act between growth and inflation of the yuan in China. Chi Lo, senior China economist at BNP Paribas, said a swift cut in the country’s debt to GDP ratio would be implausible. “This could crush the economy before the benefits of deleveraging could even emerge.”

No doubt the ability by banks to lend and investors to borrow will trickle down to other asset classes. One, in particular, is real estate. At the heart of the communist society, is the necessity to disenfranchise the people by prohibiting ownership of property. As such, the selective loosening contributing to frenzied home buying in many big Chinese cities, is prompting the government to reinstate tight mortgage and other restrictions to curb speculation. The inner-Marxist DNA takes over with the thought of the proletariat rising, and gaining luxuries that only the ruling class is allowed to have. What a wonderful world.

About John Thomas

John Patrick Thomas is a four-time cancer survivor who lives with his family in South Florida. John attended Gettysburg College and The American University before embarking on an entrepreneurial career on Wall Street. He turned to the teaching profession after his life-threatening bout with bone cancer. John has recently written a #1 Amazon Cancer Bestselling book entitled, “A Call to Faith, the Journey of a Cancer Survivor.” He has appeared in publications such as The New York Times, The Wall St. Journal, The Washington Post, Memorial Sloan-Kettering Cancer Center publications, and was featured in new DayStar network series, “Impact with Pastor Dave.” He has traveled as a missionary and may be one of the few people that tell you cancer was the best thing to ever happen to him. You’ll have to ask him why.

3 comments

  1. fighterforfreedom

    The Chinese central bank already has 50% of the debt non-performing – their next step in the gambit will be to appeal to the World Bank yo gain solvency which the World Bank will support due to the new configuration of special drawing rights granted through the BIS which provides credit based upon need and acceptance of refugees which the Chinese have already imported for cheap labor as these imports will work for less than their indigenous population. The world bank is simply the globalists predominated by the bank of England, PARIBAS, Rockefellers, Rothchild’s etc and they are not going to lose – the Chinese driving their solvency into the ground due to Trumps tariffs is an attempt to overload the world bank system so there is less revenue to float from the globalists to the federal reserve which would overextend the globalist international banksters

  2. GO TRUMP ! China has been taking advantage of the USA far to long, Now it’s time for a show Down !

    • It looks like the EU Canada Mexico as well as Chyna markets are all feeling they Trump, thump-thump!

      As their markets continue to drop, pressure is going to rise in a huge wave by corporations for the government to negotiate for “fair trade” and drop their their own protections. Thank U Donald Trump!

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