The People’s Bank of China (PBOC) urged commercial banks to use proper risk controls with managing liquidity as the central bank is determined to continue to reduce easy money. In order to reign in the large shadow banking industry, the PBOC indicated in its quarterly monetary policy that it would continues to increase oversight of lending in high risk areas, including real estate and industries that struggle with overcapacity.
The monetary policy review said that the central bank would help guide commercial banks to strengthen liquidity and liability management in order to support real economic growth opposed to previous risky speculation. Market participants are beginning to pay attention to China’s rapid growth in credit, particularly that of local government, and multiple cash crunches.
The PBOC is looking to pull in risky off-balance sheet lending before the years of easy lending trigger a massive credit crisis. And a major concern is the level of debt that lies under the radar within the shadow banking realm. “We will strengthen oversight of local government debt and explore the use of market mechanisms to resolve problems in local government debt,” according to the PBOC’s quarterly report. The central bank has still received criticism over the inability to effectively communicate to the financial markets. In response, somewhat, the bank announces its short-term liquidity operations (SLO) via a micro-blogging account on Weibo.