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Why Easing Monetary Policy May Not Boost Lending

By Peng Qinqin, Wu Hongyuran, Zhu Liangtao and Guo Yingzhe / Dec 04, 2019 01:09 PM / Economy

Photo: VCG

Photo: VCG

“You can lead a horse to water but you can't make him drink,” is how one economist, writing in Caixin, described the recent monetary policy easing by China’s central bank to explain its limitations.

The People’s Bank of China (PBOC) cut two key policy rates for banks borrowing from it last month. The cuts were aimed at lowering borrowing costs for firms, specifically focusing on small businesses and private companies. The policy was also meant to boost lending to shore up the flagging economy. Some analysts think China has entered a “new rate-cutting cycle,” but doubts have been raised about its effectiveness and warned about its hidden debt risks.

Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group Ltd., an affiliate of Caixin Global, who used the idiom at the start, said sluggish borrowing demand, banks’ declining profit growth and their unwillingness to cut loan rates were all hurdles to the monetary policy working.

In simple words, it is easy for the central bank to cut rates, but it cannot force banks to lower loan rates or force firms to borrow, which makes moderate monetary easing hard to boost lending.

Read the full story on Caixin Global later today. 

Contact reporter Guo Yingzhe (

Related: Four Things to Know About How Loans Now Get Priced in China

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