The PBOC is doing something big
China’s central bank is in the midst of its fastest balance-sheet expansion on record. This graph shows the main component entries of the balance sheet of the People’s Bank of China. Assets are above, liabilities below. In previous work, I have looked at the different balance sheet regimes that have steered China’s monetary policy over the last couple of decades, divided by vertical lines in the graph:
One of the asset entries, loans from the PBOC to Chinese commercial banks, has exploded, picking up 5 trillion renminbi in the last six months. The central bank is lending money at a furious pace. One can compare to 2016, when PBOC loans to commercial banks spiked by a similar amount. But at that time the central bank was selling assets too, leaving the balance sheet mostly level overall:
Now, in significant contrast, we are seeing outright balance sheet expansion, quantitative easing of some kind, on a scale that is notably changing the structure of the PBOC’s balance sheet. At this pace, for example, it won’t be long before the PBOC holds more Chinese commercial bank credit than it does Treasury securities.
The lending has been balanced on the liability side, first by expansion in government deposits (which I record under other liabilities), which then contracted and were replaced by a big jump in bank reserves.
These PBOC balance sheet developments seem worth noting. Unfortunately I don’t have a clear story to offer just yet. Please point me toward any sources that clarify what the PBOC is trying to do.
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