Open market operations by the People’s Bank of China (PBOC) have become routine over the last few months while more obvious tools like reductions of the reserve requirement ratio and interest rates were put on hold. The latest figures show that the PBOC has made RMB344 billion available to the banking system in the month of August.
Because of the fear of the rebound of inflation and real estate prices, some have suggested that the PBOC is avoiding the use of high profile tools such as RRR cuts while maintaining liquidity by open market operation. It is worth noting, however, that the net liquidity injection for July and August combined is almost as large as one reduction of the reserve requirement ratio of 50 basis points. That, of course, does not mean that PBOC is giving up on the traditional tools. More tools are available for PBOC to expand the monetary base.
Whether those tools will be ultimately stimulate the economy is a different matter.
The chart below shows the weekly injection/withdrawal. Note that despite the net withdrawal for the current week, PBOC injections for August was by far the biggest for the year.
Meanwhile, the banks themselves may have made about RMB580 – 600 billion of new loans in August according to Caijing, citing executives from some of the Chinese banks.
Of about RMB600 billion of net new loans, the big four banks (Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China) may have lent about RMB180 – 220 billion of new loans, slightly below July’s figure of RMB237.179 billion. For the first half of August, big four banks have lent about RMB70 billion.
In July, Chinese banks made RMB540 billion of net new loans, thus RMB600 billion of new loans, if reached, would be an 11% increase. Part of this increase, however, is seasonal, as July appears to be a historically weaker month in terms of new loans, and demand for loans, on the whole, remains weak, with bills financing and home mortgages dominating the mix of new loans.
Meanwhile, deposits increased in August according to the report.
The chart below shows the recent trend in new loans and money supply growth, with the final red bar representing the estimated RMB600 billion new loans. It is quite a pick-up from July, although it is not going to be a very strong number either.
