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‘Asset famine’ in China is putting the brakes on the central bank’s bond trading ambitions

A scarcity of low-risk assets in China’s financial sector is hampering the central bank’s plans to make its monetary policy toolbox more efficient with a return to the government bond market after a 17-year hiatus.

Following a speech by President Xi Jinping in October 2023, the People’s Bank of China (PBOC) recently pledged to add buying and selling government bonds to its toolbox, to improve an increasingly flawed monetary policy transmission mechanism .

PBOC trading โ€“ unlike the quantitative easing moves we see in the West โ€“ would help deepen the bond market by improving liquidity and reducing volatility, attracting more issuers and investors to help companies and other entities break their dependence of less efficient bank loans for raising funds.

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