Will China’s latest monetary policy easing reinvigorate the economy? Markets remain wary

While January data suggests policy easing has prompted a rise in bank lending, the figures are distorted by a tendency to issue loans at the start of the year

As for the rest of 2022, concerns remain about the overall policy direction following last year’s regulatory crackdown

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A man carries a child in front of China’s central bank in Beijing on January 20. The cautionary mood in the market makes sense when underlying demand from the private sector remains subdued. Photo: AP

Hao Zhou

Hao Zhou currently serves as a senior economist (emerging markets) with Commerzbank.

Published: 3:30am, 17 Feb 2022

Since December, the Chinese central bank has introduced a slew of policy-easing measures. Following a cut to the reserve requirement ratio in early December, the People’s Bank of China (PBOC) twice lowered the one-year loan prime rate, the benchmark lending rate, in December and January respectively.

However, there has been little positive response from the stock market to the monetary policy easing; in the year to date, the benchmark CSI 300 index has lost more than 7 per cent.

Such weak market sentiment clearly suggests that the easing efforts have failed to support the capital market, a view further substantiated by the newly released January credit data. While the headline figures were above expectations, the structure of the credit reveals that the economy is still on a soft footing.

To minimise the distorting effects of the Lunar New Year, most of China’s economic data is released on a combined January-February basis. Hence, the market only receives this data in mid-March. In contrast, the credit data is released on a monthly basis, making the January figures a timely indicator for markets to gauge policy and economic dynamics.