“The economy continues to recover and its internal driver keeps strengthening.”
That’s according to the PBoC. And yes, they were talking about the Chinese economy.
While it’s true that a smattering of recent data, including credit provision figures for August, were better than feared, phrases like “continues to recover” and “keeps strengthening” suggest an ongoing process. Even if Friday’s key activity data suggests the pace of retail sales improved last month, there’s something disingenuous about the contention that the world’s second-largest economy is experiencing an “continuous” recovery.
But hey, what do you expect, right? If you’re the PBoC, you say things are going swell even if they aren’t because… well, because your boss is an iron-fisted dictator.
The irony of the PBoC’s upbeat assessment was that it accompanied an RRR cut on Thursday: The recovery is going so well that the central bank needed to ease more. Apparently, the weighted average deposit reserve ratio of financial institutions will be around 7.4% after the reduction. I assume that math takes into account rural commercial banks and other institutions where the ratio is 5%.
The 25bps reduction, effective from Friday, was the second of 2023. The last cut was in March.
The move comes on the heels of August’s MLF and seven-day repo rate cuts, and alongside various measures aimed at supporting the property market. Measures which, notably, didn’t include a cut to the five-year LPR tenor last month, a development which underscored one of many quandaries facing Chinese policymakers as they attempt to fix what Xi broke: Bank lives matter, and mortgage origination rates were already at record lows.
As I wrote on August 21, if the Party is concerned about banks amid efforts to encourage home-buying and otherwise prop up the crumbling property market, “the PBoC could always just announce another RRR cut.” Fast forward three weeks and that’s just what they did.
In theory, banks will now be able to lend more to Chinese consumers and businesses. Of course, that assumes they want credit. But why wouldn’t they? After all, “the economy continues to recover and its internal driver keeps strengthening.”
Excerpts from the short PBoC statement are below. Please do read them. The obsequiousness is morbidly amusing.
At present, my country’s economic operation continues to recover, endogenous power continues to strengthen and social expectations continue to improve. In order to consolidate the foundation for economic recovery and maintain reasonable and sufficient liquidity, the People’s Bank of China decided to lower the deposit reserve ratio of financial institutions by 0.25 percentage points on September 15, 2023.
The People’s Bank of China has always adhered to the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, resolutely implemented the spirit of the 20th National Congress of the Communist Party of China and the Central Economic Work Conference, and implemented prudent monetary policies accurately and effectively in accordance with the decisions and arrangements of the Party Central Committee and the State Council to maintain liquidity.
A couple of my larger clients used to pay me mid-five figures every year to write stuff that sounded just like this. It was for reports to be read by banking regulators. My late English writing teacher could often be heard groaning from the grave when I submitted the reports.