Stable aggregate credit expansion, more aid to small biz, green moves in focus

China's monetary policy will turn more supportive of economic growth in 2022, with a focus on both stabilizing aggregate credit expansion and ramping up structural aid to small businesses and green development, officials and experts said on Thursday.

Prudent monetary policy in the coming year will be flexible and appropriate and give full play to both the aggregate and structural functions of monetary policy tools, said Sun Guofeng, head of the monetary policy department at the People's Bank of China, the central bank.

The PBOC will become "more proactive" and bump up support for the real economy, Sun said at a news conference on Thursday.

On the one hand, the central bank will leverage multiple tools to keep liquidity reasonably ample, strengthen the stability of credit growth and reduce financing costs of enterprises while keeping it at an overall stable level, he said.

"On the other hand, the PBOC will actively ramp up structural policy support," Sun said. "Monetary policy will further beef up support for small and micro businesses, green development and other key areas and weak links of the economy."

Specifically, the central bank will transform two transitory policy aids to small and micro businesses into regular schemes and make good use of the two newly launched tools to facilitate green development, among other measures, he said.

China unveiled two monetary tools to facilitate carbon reduction and the clean and efficient use of coal in November.

One tool specifically aims at supporting carbon reduction. The first batch of funds released via this tool amounted to 85.5 billion yuan ($13.4 billion), and has been provided to financial institutions. This is estimated to reduce carbon emissions by about 28.76 million metric tons, official data showed.

Chen Dong, head of Asia macroeconomic research at Pictet Wealth Management, a Swiss firm, said the combination of an overall easier monetary stance and structural policy aid is expected to help stabilize China's credit growth and economic momentum in 2022.

The new loans added, an indicator of credit expansion, came in at 18.8 trillion yuan in the January-November period, up by 438.4 billion yuan year-on-year, according to the PBOC.

Chen said he expects a moderate pickup in China's credit growth in the coming year and another cut in the reserve requirement ratio, or the proportion of money lenders must have as reserves and not loan out, by 0.5 percentage point early next year.

The PBOC has implemented two RRR cuts this year as part of its increasing efforts to counter downward pressure on growth. The country's one-year loan prime rate, a key benchmark lending rate, was pruned to 3.80 percent in December from 3.85 percent, the level maintained since April 2020.

The annual Central Economic Work Conference earlier this month set out China's economic policy agenda for 2022. The meeting acknowledged that the country is facing threefold pressure from demand contraction, supply shocks and weaker expectations and required actions to safeguard macroeconomic stability.

Official data also showed that during the first 11 months of the year, the average interest rate of corporate loans came in at 4.61 percent, down by 0.11 percentage point from the same period last year. In November, the interest rate dropped to 4.54 percent, the lowest reading on record.

Chen Jia contributed to this story.