With China’s Economy on “Verge of Collapse”, PBOC Central Banker Calls for Helicopter Money

August 16, 2023

As Bloomberg’s Garfield Reynolds writes in the aftermath of last night’s unexpected Chinese rate cut, while the nation’s economic struggles were (finally) severe enough for the authorities to respond with their biggest interest-rate cut since the pandemic, it will be nowhere near powerful enough to help spark a turnaround.

For a start, Reynolds writes, that scope “is rather less impressive when you realize the reduction in the rate on one-year PBOC loans — or medium-term lending facility — was all of 15 basis points. Most central banks faced with the sort of slowdown China is facing might well decide to cut by three times as much or more.”

The real difficulty for China is that previous reductions haven’t done all that much to galvanize lending in order to stimulate activity; after all as we have discussed previously, one can’t fix a lack of demand problem with more supply (one can , however, create asset bubbles).