A senior official from China’s central bank claimed that its stimulus injections were ten times more efficient than liquidity released from the U.S. Federal Reserve.
«Each yuan injected into the money supply generated 3.5 yuan worth of bank loans,» said Sun Guofeng, director general of monetary policy at the People’s Bank of China, at a Beijing-based press conference last week.
According to Sun, this contrasts with just $500 billion of new loans in the U.S. resulting from $1.6 trillion of liquidity. He also highlighted a 0.17 percentage point dip in U.S. commercial paper – a benchmark for real interest rates for businesses – as further evidence of limited effectiveness from easing. «China’s efficiency is 10 times that of the Fed,» he declared.
Still Not Enough?
Despite a significant increase in new bank loans – 7.1 trillion ($1 trillion) in the first quarter of 2020, compared to $820 million in the same period last year, according to official data – the central bank has recently faced pressure to offer even more economic support.
«Our internal assessment showed the amount [of liquidity injection] since January is overall appropriate and ample,» added Zhou Xuedong, a PBOC spokesman, at last week’s briefing. «Too much liquidity may bring a series of problems, such as overcapacity and the rise of regional financial risks.»
Fund Misuse
Whilst China may boast of its high conversion rate from released liquidity to issued loans, it continues to grapple with the issue of fund misuse. Its finance ministry is concurrently reviewing a list of companies that have obtained low-interest loans intended for combating the coronavirus outbreak.
According to authorities, 5,881 companies have acquired $32.4 billion of low-cost loans with a focus on businesses that make, transport or sell medical supplies and daily necessities. It is also pushing local authorities to intensify scrutiny especially for firms that have received loans of over $71 million, particularly from multiple lenders, as well as loans that have attracted public attention or those issued after March 15 when the domestic epidemic reportedly began stabilizing.
Sale of Meat Products
Last month, a Shenzhen-listed firm reportedly borrowed $42.6 million from Zhongyuan Bank claiming to be for the production and sale of meat products only to subsequently be called out for strong existing cash flows and its later purchase of a $56.7 million product from its original lender.
