Central bank to expand relending pilot program

View of the headquarters and head office of the Peoples Bank of China (PBOC), China's central bank, in Beijing, China, 27 June 2015. [Photo/IC]

It again raised discussions about whether the Chinese "Quantitative Easing" or "QE" is coming after the bank first launched the pilot program in Shandong and Guangdong in 2014.

According to a statement from the website of the People's Bank of China, high quality credit assets issued by financial institutions in the pilot regions can be collateralized for relending from the PBOC, after it passed the central bank's assessment.

Wang Tao, chief economist in China at the UBS AG, wrote earlier that the measures "should not be treated with the same significance as other QE undertaken by developed economies in recent years."

"China is easing monetary policy with quantitative measures, as it has typically done in the past," said Wang, because it does not mean that China has run out of other means to increase base money supply or that it has exhausted the interest rate tool.

Ji Min, deputy chief of the central bank's research bureau, said that the relending program will help to facilitate targeted easing when the economy is under downward pressure to provide further liquidity to the market.

A comment from Ma Kunpeng, an analyst at Guojin Securities, also said that the relending doesn't equal to short-term aggressive stimulus or the "QE".

"The typical QE is from the US Federal Reserve, which means the Fed directly purchases commercial bank's assets related to the subprime mortgages, and many of that are toxic assets. But in China, the financial institutions can decide whether they need to pledge credit assets to the central bank for relending, and the assets should be qualified," said Ma.

To achieve the annual monetary aggregate target, or the M2, the PBOC has taken additional measures to its collateralized on-lending facilities since 2013, including the Standing Lending Facility (SLF), Short-term Liquidity Operations (SLO) and Pledged Supplementary Lending (PSL), as the supplementary tools to manage the monetary base.

On May 13, the State Council, or the country's cabinet, decided to expand the securitization of credit assets pilot by 500 billion yuan, and support the securitization products to be traded on exchanges.