China’s central bank preparing further policy easing to counter credit squeeze

China’s central bank will use unconventional methods to support the ailing corporate bond market and guide financial relief to vulnerable areas of the economy, according to analysts.

Market expectations are that Beijing would further ease a variety of policies in coming months, as well as urge banks to lend more to small companies, in a bid to counter a domestic economic slowdown and offset the impact of a trade war threat with Washington.

The People’s Bank of China has promised support to some large banks through medium-term lending facilities, a widely used liquidity tool, if they increase corporate loans and corporate bond purchases, the 21st Century Business Herald reported Thursday, citing several banking sources.

“The tone is changing. There could be bigger policy relaxations than the current targeted or marginal easing,” said Wu Qi, a senior fellow at the Pangoal Institution, a Beijing-based policy institute.

Financial deleveraging was until recently the key policy theme among Beijing’s economic architects, manifesting in asset management rules put in place to regulate shadow banking. The emphasis on deleveraging has softened in recent months as second quarter economic data showed annualised growth had slowed to 6.7 per cent, while the outlook for coming quarters was less optimistic amid concerns over the impact from US tariffs.

“The corporate bond market is just one example of the structural credit squeeze,” Wu said.