PBOC keeps close watch on shadow banking, bad debt amid China slowdown

Mainland China’s No. 2 monetary policymaker told world finance leaders this week that the central bank was closely monitoring shadow banking and local government debt on the mainland, as bad loans increase and economic growth grinds at a 24-year low.

Yi Gang, vice governor at the People’s Bank of China and the head of the mainland’s capital controls regulator, told a G20 meeting in Turkey on Tuesday that the Chinese economy had become more sustainable as consumer spending rose, according to a statement posted on the PBOC website on Wednesday.

In its fourth quarter monetary policy report this week, the PBOC downplayed the message of a stable aggregate money supply that it emphasised in the first three quarters of 2014, hinting at a greater willingness to add liquidity to the market in 2015 to help stem a downturn.

“The PBOC reiterated its ‘prudent’ policy stance but, in our view, indicated a slightly looser bias,” Nomura said in a report on Wednesday.

Mainland gross domestic product growth slowed to 7.4 per cent in 2014, the slowest since 1990. Export growth tumbled 3.3 per cent year-on-year in January while imports fell about 20 per cent.

In response to flagging growth, the central bank last week cut its reserve requirement ratio by 50 basis points, the first such move in two years, freeing up to 750 billion yuan that commercial banks once had to deposit with central bank as reserves.