PBOC's Yi talks up prudent monetary policy

China will strike a balance between stabilizing economic growth and preventing risks, even as debt was allowed to temporarily rise this year to support the coronavirus-hit economy, the head of the central bank, Yi Gang, said on Wednesday.

Yi, the governor of the People’s Bank of China, told the Annual Conference of Financial Street Forum 2020 in Beijing that he expected China’s macro leverage ratio to stabilize next year as the economy expands, after the debt gauge rose in 2020.

Bank lending in the first nine months hit 16.26 trillion yuan (US$2.44 trillion) as policy-makers looked to reboot economic activity, beating a previous peak of 13.63 trillion yuan in the same period last year.

“Monetary policy needs to guard the ‘gates’ of money supply, properly smooth out fluctuations in the macro leverage ratio, and keep it on a reasonable track in the long run,” Yi said.

In July, Ruan Jianhong, head of the PBOC’s statistics department, said that the country’s macro leverage ratio jumped 14.5 percentage points in the first quarter and climbed further in the second quarter.

The macro leverage ratio is a measurement of the debt held by Chinese governments, households and firms divided by total gross domestic product.

The Institute for International Finance said in July that China’s debt-to-GDP ratio was on track to hit 335 percent, from nearly 318 percent in the first quarter.

At the same forum, PBOC Vice Governor Pan Gongsheng said that the central bank had prepared a draft to improve macro prudential assessments, which measure weaknesses in financial systems, for the property finance sector.

The PBOC will look into indicators including the concentration ratio of property loans, the ratio of household debt to total income, and the risk-weighting of property loans, said Pan.

A list of China’s systemically important banks, and detailed regulations for them, will be revealed in the near term.

China will continue to implement and perfect the financial measures that have effectively reduced the impact of COVID-19 on the economy and extend sustained support to micro and small businesses, the job market as well as green development, said Yi.

Also at the forum, Vice Premier Liu He said the economy will very likely grow this year, adding that prudent monetary policy should be kept appropriate and flexible, and liquidity reasonably ample.

On Monday, China reported that its GDP grew 0.7 percent in January to September from a year earlier, versus a contraction of 1.6 percent in the first half following the outbreak of the novel coronavirus.

On Sunday, the PBOC’s Yi said full-year GDP will likely grow by about 2 percent.

That would make China the only major economy expected to report growth in 2020, though it would be the country’s weakest annual expansion since 1976.

Speaking on a separate panel at Wednesday's forum, Yi warned that financial technology, while making services more convenient, has created data gaps and faces problems when it comes to protecting business secrets and personal privacy.

Public and government information “must be more transparent ... (but) what must be protected must be protected,” he insisted.