China’s PBOC showdown will force Xi to pick sides

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China’s PBOC showdown will force Xi to pick sides
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President Xi Jinping may be forced to pick a side in the battle against bad debt, says petesweeneypro

, are bothered by alleged moves toward “independence” by the central bank. The PBOC has grown more powerful, but it has never been free to set rates the way the U.S. Federal Reserve Board or the Bank of England are. Even so, the presence of disciplinary watchdogs in a bastion of pro-market reformists looks alarming for their supporters.

Technocrats Guo Shuqing and Yi Gang, party secretary and governor of the PBOC respectively, were given wide latitude to reduce systemic financial risks as duff loans reached an estimated $1.5 trillion and household debt soared. They have played hard ball, holding interest rates relatively high throughout the pandemic, locking highly indebted companies out of domestic credit markets and suppressing shadow banking.This made many investors and bureaucrats understandably cranky.

However, the latest suppression of the property sector, which drives up to a third of China’s economic activity, has destabilised markets and swollen the ranks of PBOC’s enemies. At the same time Beijing’s confidence that it has weathered the worst of the pandemic is wearing thin; top officials may have pressured the central bank to cut banks’ reserve requirement ratios on Monday.

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