May 11, 2020 08:32 PM

PBOC Vows More Support for Coronavirus-Hit Economy

The central bank said its policies would put more emphasis on growth and employment and reiterated its pledge to adopt a “more flexible” monetary policy.
The central bank said its policies would put more emphasis on growth and employment and reiterated its pledge to adopt a “more flexible” monetary policy.

China’s central bank signaled it will step up support for the world’s second-largest economy as it struggles to recover from the impact of the coronavirus epidemic, pledging to intensify policies that will help companies, boost jobs and increase domestic demand.

The People’s Bank of China (PBOC) has previously vowed to “avoid flood-like stimulus” and stick to targeted measures to bolster the economy, but the phrase was absent from its first-quarter monetary policy implementation report (link in Chinese) released Sunday. The central bank said its policies would put more emphasis on growth and employment and reiterated its pledge to adopt a “more flexible” monetary policy to counter the “unprecedented” impact of the Covid-19 outbreak on the economy.

“In response to the problems caused by insufficient demand, reduced consumption, business difficulties, and increased employment pressure triggered by the coronavirus epidemic, we will intensify counter-cyclical adjustment of macro policies, firmly implement the strategy of expanding domestic demand, and comprehensively promote epidemic prevention and control and economic and social development,” the central bank said. The PBOC will “place supporting the restoration and development of the real economy in an even more prominent position.... maintain abundant liquidity and support the real economy, especially small and medium-sized enterprises, to overcome the difficulties,” the report said.

The comments, contained in the policy outlook section of the central bank’s quarterly report, follow a pledge by the Politburo, the country’s top decision-making body, at an April 17 meeting to use “stronger macro policy tools (link in Chinese) to cushion the epidemic fallout” and leverage monetary policy tools such as reserve requirement ratio cuts, interest rate reductions and re-lending.

Unprecedented challenges

The Politburo meeting came on the day that official figures showed gross domestic product (GDP) fell by 6.8% year on year in the first three months of 2020, the worst quarterly performance since records began in 1992. Although most of the country’s factories and businesses have resumed operation and demand for cars and other consumer goods is rebounding, unemployment remains elevated and the economy is facing another blow as the spread of the coronavirus pandemic across the globe has led to a collapse in exports.

The PBOC underlined the new risks to the Chinese economy from external factors.

“The international epidemic has continued to spread, the world economy has entered a recession, and uncertainty is increasing,” the report said. “The long-term trend of stable growth in China has not changed, but the current challenges facing economic development are unprecedented. Difficulties, risks and uncertainties must be fully estimated, we must enhance the sense of urgency and do a solid job in all aspects of economic and social development work.”

China’s main economic policies and targets for this year, including the GDP growth and budget deficit goals, will be announced at the annual meeting of the National People’s Congress, the country’s legislature, on May 22. Many economists expect the meeting will announce further measures to boost the economy.

China’s central bank is responsible for controlling inflation, ensuring high employment, preventing financial risks, promoting economic growth, and supporting the government’s policies to adjust the structure of the economy. The PBOC said in its report that it still needs to appropriately handle the relationship between these objectives.

The central bank reiterated that it will use quantitative and structural policies to keep liquidity reasonable and ample, focus on providing support to the real economy, and push ahead with interest rate reform to help lower borrowing costs for businesses. Growth in M2 money supply and total social financing, a measure of credit and liquidity that includes bond and equity sales, will be kept in line with or slightly higher than nominal GDP growth, targets that are slightly higher than before the coronavirus outbreak.

Over the past a few months, policymakers have rolled out a series of measures to support economic activity and help companies recover from the impact of the coronavirus, including lowering market interest rates and offering preferential policies to the businesses worst hit by the coronavirus outbreak.

Interest-rate reform

On Jan. 30, the PBOC announced it planned to provide 300 billion yuan ($42.3 billion) in low-cost loans to banks and instructed them to re-lend that money to enterprises on the frontlines of fighting the coronavirus. On Feb. 26, the PBOC announced another 500 billion yuan in funding for the program and on April 20 unveiled another 1 trillion yuan.

As of May 5, a total of 7,037 enterprises had obtained a combined 269.3 billion yuan from the first phase of the program with a weighted average annual interest rate of 2.5%, and 399.6 billion yuan had been disbursed under the second phase, according to Sunday’s report. The average interest rate on business loans in March was 0.3 percentage points lower than in December, a decline larger than that of the new benchmark national loan prime rates (LPRs) during the same period, the PBOC said, adding that the introduction of the LPR last year had improved the efficiency of monetary policy transmission and helped bring interest rates down.

“(This) reflects that the LPR reform has played an important role in enhancing the independent pricing ability of financial institutions, improving the competitiveness of the loan market and clearing obstructions in the market interest rate transmission mechanism. The effect of LPR reform is obvious,” the PBOC said.

Contact reporter Tang Ziyi ( and editor Nerys Avery (

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