BEIJING (Reuters) – As China’s economy shifts from high-speed growth to high-quality development, economic activity can be sustained by a relatively slower rate of monetary expansion, a senior central bank official said on Thursday.
The pace of growth in broad M2 money supply had previously exceeded the nominal rate of expansion in gross domestic product (GDP), but the economy has changed, said Sun Guofeng, head of the monetary policy department at the People’s Bank of China (PBOC), at a forum.
M2 money supply in April grew 8.5% from a year earlier, slightly less than the previous month, and new bank lending in April also slowed. While lending levels in April tended to come off from March in past years, the moderation suggested Beijing was cautious about pumping too much credit into the economy.
Policy insiders told Reuters late in April that the PBOC was likely to pause to assess economic conditions before making any further moves to ease banks’ reserve requirements, though the PBOC’s easing bias remains unchanged.
The PBOC has cut the proportion of cash that commercial lenders need to set aside six times since January 2018, in a bid to spur lending and bolster economic growth.
China’s GDP grew a steady 6.4% in the first quarter, defying expectations of a further slowdown. Beijing aims to keep growth between 6% and 6.5% this year.
“In recent years, with China’s economy turning from high-speed growth to high-quality development, economic growth has tended to be lighter,” Sun said.
“A relatively slower pace of monetary growth can meet the needs of keeping economic operation within a reasonable range.”
The PBOC will make more efforts in optimising the structure of money supply while maintaining a stable total amount, Sun said.
There is ample room in China’s monetary policy to deal with internal and external challenges, Sun reiterated, given the PBOC’s “rich” policy toolkit.
The PBOC will adhere to a prudent monetary policy, adjust and fine-tune policies in a timely way according to economic growth and price changes, and maintain reasonable and abundant levels of liquidity, he said.
The central bank will also push forward and speed up the issuance of perpetual bonds by commercial lenders, Sun said.
The Chinese banking sector is facing pressure to replenish relatively thin capital to cushion against rising bad loans in an economic slowdown, and to heed government calls to boost credit expansion.
Perpetual bonds have no maturity date.
(Reporting by Leng Cheng and Ryan Woo; Editing by Jacqueline Wong)