PBoC Indicates Careful and Selective Easing in 2022

Headquarters of the People's Bank of China, Beijing 2015. Photo Credit: bfishadow. Licenced under Creative Commons.

THE PEOPLE’S BANK OF CHINA (PBoC) on December 24 provided support for those who think that the central bank’s monetary policy will be more expansive early next year so that the slowing economy does not get ahead of its intended orderly decline.

The statement issued after its quarterly monetary policy committee meeting echoed the view of the Central Economic Work Conference earlier this month that:

The external environment is becoming more complex and severe and uncertain, and the domestic economic development is facing the triple pressure of demand contraction, supply shock and weak expectations.

In response, the PBoC foreshadowed its greater and pro-active support for the real economy through a more forward-looking and targeted monetary policy.

Small and micro businesses are one set highlighted for support. However, this came with the rider that the central bank will ‘strive to ensure that financial support for private enterprises is compatible with the contribution of private enterprises to economic and social development’ — a reminder that private enterprises must remember they are expected to contribute to common prosperity.

Two other stated objectives are to use monetary policy to realise the national goals of carbon peaking and carbon neutrality through developing green finance and safeguarding what the PBoC describes as ‘the legitimate rights and interests of housing consumers’. For those who track such things, the phrase ‘healthy development’ of the real-estate market preceded ‘virtuous circle’ in the statement.

GDP growth is likely to have slowed to 4-5% in the fourth quarter, although it will still come in above the 6% target for the entire year. Sub-6% growth is likely planned for in 2022, even if monetary (and fiscal) policy is carefully and selectively loosened, as the central bank indicates. Economic stability is the watchword for the coming year.

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