China should boost banks' active support for the economy, central bank official says

SHANGHAI (Reuters) – Encouraging Chinese banks to actively strengthen their support for the real economy, rather than relying on the authorities' orders to increase their lending, is key to improving credit supply in the country. Economy, said Monday a central bank official.

Sun Guofeng, head of the monetary policy department of the People's Bank of China, wrote in a commentary published in China Finance magazine of PBOC, Sun Guofeng. .

Sun said the PBOC is taking steps to ease constraints on credit availability to ensure a more flexible monetary policy translates into more flexible credit conditions.

"If the capital is not replenished in a timely manner, it may limit the availability of reasonable credit for the next stage" loans, he wrote. He added that the PBOC is further accelerating the pressure of banks to issue perpetual bonds in order to replenish their own funds.

According to Sun, "changes in the foreign exchange situation" meant that some banks faced significant medium- and long-term liquidity constraints, and that banks' practice of using deposits to determine size of new loans also restricted new loans.

The PBOC is using a variety of measures, including targeted reductions in reserve requirements and the medium-term targeted lending facility, to encourage banks to lend to smaller businesses, he said.

PBOC's liquidity injections in anticipation of the Lunar New Year holidays have "correctly ensured global liquidity," he added.

Demand for bank credit is also being hampered by poor credit reporting, Sun said, noting that the PBOC continued to publish non-conforming deposit and reference loan rates at partially liberalized market rates.

The PBOC will encourage market-based interest rate reforms and gradually unify two interest rate "trajectories", Sun wrote.

Chinese authorities have struggled to increase lending in an attempt to stimulate the slowdown in the Chinese economy, affected by weak domestic demand and the trade war with the United States.

In 2018, China's economy experienced the slowest growth in 28 years, penalized by weak investment and declining consumer confidence.