Credit-asset pledged relending expansion not QE

BEIJING - The expansion of a credit-asset pledged relending program should not be misinterpreted as a Chinese version of quantitative easing (QE), a senior economist of the central bank told Xinhua on Wednesday.

It will not have a significant impact on total liquidity and should not be misread as a kind of QE, said Ma Jun, chief economist at the research bureau of the People's Bank of China (PBOC).

Credit-asset pledged relending allows banks to refinance high-quality credit assets rated by the central bank. Under the program, the central bank lends money to commercial banks which use high-quality credit assets as pledge.

Relending is a traditional form of central bank's base money supply, but the PBOC previously had a strict requirement of accepting only government bonds, PBOC notes, bonds from policy banks and top-rated corporate bonds as collaterals.

The PBOC announced last Saturday it would expand the pilot program from Shandong and Guangdong to nine municipalities and provinces, including Shanghai, Tianjin, Beijing and Chongqing.

The move is intended to cut borrowing costs and guide more funds into agriculture and small enterprises to boost the real economy, the PBOC said.

The expansion has been characterized by some as a Chinese-style quantitative easing, with speculation that it will bring as much as seven trillion yuan into the market.

"The expansion of the program does not mean the central bank will inject liquidity on a large scale," said Ma, adding that the annual growth target of outstanding broad money supply (M2) will remain unchanged at 12 percent.

He said the expansion of the program is prerequisite for local financial institutions to obtain more liquidity support, but it does not necessarily mean all the local financial institutions will automatically receive liquidity support.

The main purpose of the expansion is to fine-tune liquidity management by the central bank, especially to facilitate short-term fund injections to small and medium banks, to avoid financial risks, said Zeng Gang of the Chinese Academy of Social Sciences.

He said the move can be seen as an attempt by the central bank to maintain financial stability and raise the banking system's capability to support the real economy.

China's positions for forex purchases, an important indicator for foreign capital flow in and out of China as well as domestic yuan liquidity, witnessed a record dive of 723.8 billion yuan ($113.6 billion) to 28.2 trillion yuan in September.

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