The central bank of China, the People’s Bank of China, has received praise from the US government in their handling of a credit crunch last month, in advance of joint economic talks that are due to be held in Washington. The U.S.-China Strategic and Economic Dialogue is scheduled for July 10-11, and will be keenly watched by international observers looking for clues on the future of Beijing- Washington relations.
The PBOC has held up supplying liquidity to interbank markets in the past few weeks, prompting members of the market to exert greater discipline and judgment when lending, according to an Obama administration official yesterday.
When the overnight lending rate between banks reached a record high of 11.7% on June 20, the PBOC did not comment for four days until June 25 saying that banks committed to lending will be given priority for liquidity support, during the credit crunch.
The US has been imploring Chinese government officials since 2006 to lessen their involvement in the economy
In the statement, the PBOC repeated Premier Li Keqiang’s prior calls to “make active use of existing funds” to support the economy. “lenders should prudently manage liquidity risks that may result from overly fast credit asset expansion. All financial institutions should… maintain credit growth at a stable and moderate level,” Whilst larger commercial lenders were urged to “cooperate with the central bank to stabilise the market”.
The US has been imploring Chinese government officials since 2006 to lessen their involvement in the economy, when the bilateral talks first started. American officials see this as one of the first steps towards a more effective, market focused economic system.
Unfortunately for China’s economy US praise cannot change the fact that its economy expanded 7.8% in 2012, the slowest rate in 13 years. Alongside the relatively lackluster growth, Goldman Sachs has revised its forecast for China’s economic growth down to 7.4% from the previous 7.8% for 2013, due to stiff liquidity in the banking system.
Finbarr Toesland
