China will not shrink balance sheet, Latest Business News - The New Paper

China will not shrink balance sheet

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SHANGHAI: China's central bank will not take action to shrink its balance sheet like the US Federal Reserve as it does not face the same pressures due to its use of different policy tools, an adviser to the People's Bank of China (PBOC) said yesterday.

The Fed is looking to start reducing its massive US$4.2 trillion (S$5.8 trillion) portfolio of Treasury bonds and mortgage-backed securities beginning later this year.

However, the PBOC's assets are mainly foreign exchange-based, Mr Sheng Songcheng, former director-general of statistics and research at the central bank, wrote in the Shanghai Securities News.


"The balance sheet structures of China and the United States are very different," he wrote.

"The PBOC does not have the huge portfolio of securities assets that need to be dealt with and foreign exchange accounts are impacted by capital flows, which can be hedged..."

The PBOC also held a neutral monetary policy, he added, while the Fed is aiming to gradually normalise ultra-loose conditions.

Mr Sheng also said that while the Fed's balance sheet expanded rapidly during the financial crisis, from less than $900 billion before 2007 to $4.5 trillion in 2014, the PBOC's balance sheet less than doubled in size during that period.- REUTERS