Update: China to boost money supply growth this year, PM says

China will use a variety of monetary tools to increase the growth of its M2 money supply and total social financing (TSF) this year at “significantly higher” rates than in 2019, as the country seeks to offset the economic damage caused by the coronavirus epidemic.

Premier Li Keqiang Announced the Commitment in His Annual Report government work report at the National People’s Congress, the country’s highest legislative assembly, during its annual session in Beijing on Friday.

The country’s monetary policy will be conducted in a “more flexible and appropriate manner,” according to the report. In contrast, Beijing last year aimed to keep growth in M2 and TSF – a measure of credit and liquidity that includes sales of bonds and stocks – in line with nominal GDP growth in order to keep the main indicators within an appropriate range.

The broad M2 money supply of the country increased by 8.7% in 2019, while TSF outstanding increased by 10.7%, according to central bank data. His GDP grew by 6.1% Last year.

At the end of April, the growth of M2 and TSF outstanding stood at 11.1% and 12% over one year, both higher than the rates for the whole of last year.

“Current growth levels can already be considered to be significantly faster than last year, so this is not particularly restrictive,” wrote economists from Goldman Sachs (Asia) LLC and Beijing Gao Hua Securities Co on Friday. Ltd. “Similar to lack of GDP growth target, it may simply reflect uncertainty about the level of support needed for the economy. “

“We doubt that credit growth will accelerate as sharply as in 2009, as Chinese officials increasingly recognize the costs of excessive leverage,” economist Julian Evans-Pritchard said on Friday. senior Chinese at the research firm Capital Economics Ltd. “That said, it is clear that concerns about debt levels are taking a back seat for now as they were barely mentioned in this year’s working report.”

There is room to accelerate credit growth even further in the coming months, as policymakers pledge in the working report to further reduce reserve requirements and bank interest rates, and increase lending to support the real economy, economists at HSBC Bank PLC have suggested.

Li also committed to the work report to increase financial support to try to keep businesses in business without interruption. “Large commercial banks are expected to increase inclusive finance lending to micro and small businesses by more than 40%,” Li said. Previously, the government’s requirement for this growth rate was 30%.

The government is once again extending the repayment deadlines for loans to micro, small and medium-sized enterprises until the end of next March, according to the activity report. Previously, he had extended the deadlines until the end of June.

Li also mentioned that policymakers are striving to develop “new monetary policy instruments that can directly stimulate the real economy,” in his first public reference to the instruments.

These new monetary policy instruments may include fund products that offer guarantees to small and medium-sized enterprises, said Hua Changchun, economist at Guotai Junan Securities Co. Ltd.

In addition, small and medium-sized banks are encouraged to replenish their capital and improve their governance to better serve micro, small and medium-sized enterprises, Li said.

Wu Xiaomeng, Peng Qinqin, and Wu Hongyuran contributed to this report.

Contact reporter Timmy Shen ([email protected]) and editor-in-chief Michael Bellart ([email protected])

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