China wants to install quantitative easing for local governments


There is a whisper in the global economy that China wants to install quantitative easing. That seems unlogical with a GDP growth of 7%, booming financial markets and an inflation of 2%. But the assets are sharply increasing so this culd also be a sign for a slowdown and falling indizes.

The Peoples Bank of China (PBoC) controlls the extension of credit to the communities. The program of the PBoC purpose to give the high debted communities the possibilities to change their debt’s to bonds.

The debts of the Chinese lokal governments rises up sharply in the last years. The local governments have a big share in the national debt of China. Government imposed expenditures in infrastructure and social programs on the local government without increasing their revenue. This deficites the local governments have to finance with credits from the banks. The program should begin soon. But the banks don’t accept the PBoC’s program. The rates of the credits are 6%-7% pa, the rates of the bonds are less than 4%. the banks would lose 2% and the maturity of the bonds is longer than the maturity of the credits. The PBoC will give the banks the security that it accept the bonds as security, so banks could refinance themselves deposing the bonds as security to better conditions than normal. This, so the PboC should be enough incentive for the banks to accept the program. The PboC already has prepared a facility called Pledged Supplementary Lending (PLS). This would have also the effect that the banks could give more credits. The monetary pliciy would be loosen and this would support the growth of economy.

This measure goes parallel with the target of the government that China wants to liberalise it’s monetary policy to support the innovative medium seized companies with fresh money and to make the distribution of capital more efficient.

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