Chinese banks pumped more than US$1 trillion into the economy in the first quarter of the year, in an effort to stem the bleeding from the coronavirus pandemic. Quarterly lending reached an all-time high, even as the People’s Bank of China showed no intention of following the US Federal Reserve’s gung ho stimulus playbook, favouring targeted rate cuts and liquidity injections instead. Instead, at a press conference in Beijing on Friday, a senior central banker claimed China’s targeted approach was “10 time more efficient than Washington’s”. “China’s efficiency is 10 times that of the Fed. Each yuan injected into the money supply generated 3.5 yuan worth of bank loans,” said Sun Guofeng, director general of monetary policy at the PBOC, claiming that the US had injected US$1.6 trillion in liquidity into its banking system, resulting in just US$500 billion of new loans. Sun said the interest rate on US commercial paper, viewed as the real interest rate for businesses, fell by only 0.17 percentage points, suggesting Fed rate cuts are not as effective as they might seem. His comments come at a time when the central bank is being criticised of not doing enough to help the Chinese economy, especially in refraining from benchmark interest rate cuts. New bank loans in China totalled 7.1 trillion yuan (US$1.01 trillion) in the first quarter of 2020, a large increase from 5.81 trillion yuan for the same period last year, according to central bank data. Bank lending was 2.85 trillion yuan (US$410 billion) in March, well above the Bloomberg median estimate of 1.8 trillion yuan and February’s new lending of 905.7 billion yuan. Shaun Roache, chief economist, Asia Pacific, for S&P Global, said that cutting interest rates tends to be more powerful in supporting the economy than the quantitative easing (QE) -- buying securities from financial markets to inject liquidity into the system -- that the Federal Reserve and other major central banks are engaged in. “This is because rate cuts affect interest rates across all maturities from one day to 10 years and a lot of loans have a short maturity, often three years or less. So lots of corporate borrowers, for example, will benefit. In contrast, QE tends to affect only long-term interest rates which would benefit far fewer borrowers,” Roache said. “It is hard to estimate how much more powerful cutting rates is compared to QE but the difference is likely to be important,” he added. The PBOC, for its part, make clear that it felt its monetary policy moves to date were the right ones. “Our internal assessment showed the amount [of liquidity injection] since January is overall appropriate and ample,” said Zhou Xuedong, a PBOC spokesman, at Friday’s briefing. “Too much liquidity may bring a series of problems, such as overcapacity and the rise of regional financial risks.” Instead of all-out stimulus, the PBOC has pledged to support the most vulnerable part of the real economy , including small and private businesses, especially with Beijing shifting its priority to preventing mass unemployment rather than pursuing economic growth targets. Total social financing, the more broadly defined measure of credit in the economy that includes loans, bonds and other non-traditional financing instruments, jumped to 11.08 trillion yuan in the three-month period, from 8.18 trillion yuan a year earlier. End of March M2, the broad measure of money supply, rose by 10.1 per cent year on year, an increase of 1.3 percentage points from February and beating market expectations of 8.8 per cent. All eyes are on the stimulus response in the world’s second largest economy, where the pandemic started, and which is expected to have suffered its first economic contraction since 1976 in the first quarter. The National Bureau of Statistics is due to release quarterly economic data next Friday. Louis Kuijs, Oxford Economics’ Asia research head, said China’s recovery will be weighed down this year by weak domestic and foreign demand. The “disappointing” speed of the resumption of business operations forced Kuijs to revise down his growth forecast to minus 8.5 per cent in the first quarter compared to a year earlier, with growth for the full year 2020 basically flat. Beijing’s policy support is likely to remain limited given concerns about adding to the country’s already high debt level and risks to financial instability. “Major stimulus is distinctly unpopular in Beijing currently,” Kuijs wrote in a research note. Financial markets have long doubted that much of the liquidity the central bank is pumping into the banking system would actually find its way to the cash-strapped small businesses. The availability and cost of financing for small private-sector businesses is a decade-old problem in China. Sign up now and get a 10% discount (original price US$400) off the China AI Report 2020 by SCMP Research. Learn about the AI ambitions of Alibaba, Baidu & JD.com through our in-depth case studies, and explore new applications of AI across industries. The report also includes exclusive access to webinars to interact with C-level executives from leading China AI companies (via live Q&A sessions). Offer valid until 31 May 2020.