The move contributed to a rise in Asian markets early Wednesday, but falls short of a more sweeping effort, such as an interest-rate cut, to lift the economy, showing that Beijing is continuing to use targeted measures.
Some Chinese bankers and executives doubt the measure will do much to help rev up economic activity, pointing to sagging demand for loans from businesses due to the gloomy economic outlook.
Economists also warned that the move may not be enough, and that Beijing may face growing pressure to adopt more broad-based stimulus measures if momentum weakens further.
The injection from the People’s Bank of China will be in the form of a three-month, low-interest-rate loan to the banks, said the executive, who was briefed on the decision. The PBOC will pump 100 billion yuan each into Industrial & Commercial Bank of China Ltd. , China Construction Bank Corp. , Agricultural Bank of China Ltd. 601288.SH -0.81% , Bank of China Ltd. and Bank of Communications Co. 601328.SH -0.71% , the executive said.
While there are no explicit conditions attached to this targeted lending, the PBOC is expected to guide the big banks to channel credit into areas the government has deemed as important to the economy, such as public housing and private and small businesses, the executive said.
A Chinese national flag flutters outside the headquarters of the People’s Bank of China. The central bank is injecting $81 billion into major banks in an attempt to counter slowing growth.
The move has a similar impact as a 0.5-percentage-point cut in the amount of reserves China’s commercial banks set aside with the People’s Bank of China. But a reserve-rate cut would be seen as a broader-based, longer-lasting move, and Chinese officials would have less say in where the money ended up.
Officials at the Chinese central bank have been arguing that drastic easing measures such as a cut in interest rates might cause a flood in lending that would worsen China’s debt problems and put the economy at greater risk. In a commentary published late Tuesday, China’s official Xinhua News Agency said calls for an interest-rate cut amount to a vote of no confidence in China’s reform efforts, hinting that Beijing wouldn’t go back to its old playbook of embarking on broader stimulus to revive the economy.
“There remains big pressure [on the PBOC] to loosen credit, so it’s entirely likely that it will do more targeted easing in the coming months,” said Zhang Bin, a senior research fellow at the Chinese Academy of Social Sciences, a government think tank. “But the likelihood of a broader loosening of monetary policy is small.”
Still, some economists argued that the move won’t directly address economic headwinds such as weakening domestic demand and a slumping property market.
A credit official from Bank of China said loan demand has been sagging over the past two months given the cooling economy. The official said the injection was unlikely to boost lending significantly because of weak demand from borrowers.
The move is “unlikely to boost market sentiment as it will not effectively improve demand for loans,” said Standard Chartered economist Li Wei. “We’re not supportive of this continuous use of targeted easing. They need something bigger to turn the market sentiment around.”
Benchmark Chinese stock indexes fell on the news early Wednesday, but shares in Hong Kong rose on the central bank’s move.
The PBOC move comes as China faces growing economic hurdles. Growth in industrial production year on year in August hit a six-year low, while foreign direct investment last month hit a four-year low. Factory sentiment, fixed asset investment and retail sales are seeing weakness as China’s real-estate market slumps.
China’s economic growth has already slowed to 7.5% in the second quarter compared with a year ago and 7.4% in the first quarter, an 18-month-low. In the fourth quarter of last year, growth came in at 7.7%, and in previous years growth rates were much higher.
“This year Chinese policy makers seem more reluctant to adopt broad-based easing as they try to avoid stimulating the economy, but it appears to have only delayed the action,” Citigroup economist Shen Minggao wrote in a report.
In public, China’s leadership has maintained a calm stance. Last week in the Chinese city of Tianjin, Premier Li Keqiang told investors at a meeting of the World Economic Forum that the country was set to meet its annual growth target of about 7.5%, structural reform was on track and the country would continue its targeted stimulus measures without resorting to printing money.