Beijing has pledged to inject ample liquidity into China’s economy while ordering more credit support ahead of the US Federal Reserve’s potential interest rate hikes next year. China’s financial regulator is looking to ensure a reasonable supply of bank credit, optimise the lending structure and lower financing costs, the central bank said at a meeting on Thursday. “It is necessary to intensify cross-cyclical adjustments … maintain reasonable and sufficient liquidity, keep the money supply and the growth rate of social financing scale basically in line with the nominal economic growth rate,” Yi Gang, governor of the People’s Bank of China (PBOC), said at the conference. Meanwhile, “[We’ll] strengthen the stability of the growth of total credit, steadily optimise the credit structure, lower the overall financing costs of enterprises, and continue to enhance support for the real economy,” said Yi, who is also the director of the Office of the Financial Stability and Development Committee of the State Council. China ups forex deposit reserve requirement ratio in bid to curb yuan rally The comments reflect a sense of urgency by the financial commission to align itself with the central government’s renewed emphasis on “stability” while providing greater financial support to boost the national economy – critical takeaways from the government’s central economic work conference last week. Thursday’s meeting was also attended by PBOC Deputy Governor Liu Guoqiang and Zhou Liang, vice-chairman of the China Banking and Insurance Regulatory Commission, along with representatives of 12 major state-owned banks such as the Industrial and Commercial Bank of China and China Construction Bank. It came at a sensitive time, after official financial data for November indicated weak demand, and while economic activities have remained at a relatively low level – growth of fixed-asset investments during the January-November period slowed by 0.9 percentage points to 5.2 per cent, and social retail sales growth slowed by 1 percentage point to 3.9 per cent last month. The world’s second-largest economy is poised to see its year-on-year growth rate drop below 4 per cent in the fourth quarter of this year, way down from a post-coronavirus peak of 18.3 per cent in the first quarter. Meanwhile, most market institutions have estimated that China needs to defend a growth bottom line of 5 per cent next year. Externally, the Fed said on Wednesday that it will double its reduction of monthly bond purchases from January, meaning that its rate hikes in the US could come earlier than expected against the backdrop of high inflation. The Bank of England got the ball rolling this week by becoming the world’s first major bank to raise interest rates since the onset of the pandemic, announcing a hike of 15 basis points – the first such rate hike in three years. Chen Yulu, deputy PBOC governor, said China should build all kinds of “firewalls” to guard against systemic financial risks, while also increasing the effectiveness of financial regulation, according to his article published in China Finance magazine on Friday. “It’s time to exercise China’s long-standing view of implementing monetary policies based on domestic needs,” said Wang Jun, chief economist at Zhongyuan Bank. “We must seize this window of opportunity, as the Fed’s rate hike is only one or two quarters away.” China aims to ‘deliver real results’ for key small firms with support upgrades Meanwhile, the central bank is expected to lower the loan prime rate, a market benchmark, on Monday. If announced, it would be the first cut since May 2020. It may also consider cutting the policy rate of medium-term lending facilities (MLFs) in the coming quarter. “Authorities have shifted their tone to credit expansion and encouraging state-owned banks to extend more loans,” Wang added. Beijing has turned more accommodative in supporting economic growth, and lending to the property sector – one of the most regulated areas this year – has partially eased. Mortgage loans rose by 53.2 billion yuan (US$8.35 billion) from October to 401.3 billion yuan last month. The PBOC already injected 1.2 trillion yuan worth of liquidity by cutting the reserve requirement ratio by 50 basis points on Wednesday, while rolling over 500 billion yuan worth of one-year MLFs. “A new easing cycle has started, and peak regulation is behind us,” Larry Hu, chief economist of Macquarie Capital, wrote in a note on Thursday.