(Bloomberg) — China’s central bank echoed President Xi Jinping’s warning that the US is seeking to suppress the world’s second-largest economy, an unusual move that suggests the central bank could be looking for ways to safeguard against possible further sanctions.
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The People’s Bank of China planned to “appropriately respond to the containment and suppression of the US and other Western countries,” it said in a statement Wednesday following a meeting to study Xi’s speeches during the National People’s Congress session, which concluded Monday.
The PBOC repeated Xi’s rare direct criticism of the US last week, in which he said policies from the US and others have led to “unprecedented and severe challenges” for China’s economy. The US has restricted major Chinese firms from accessing American technology like advanced chips, with Xi taking steps to make the economy more self-reliant in those sectors.
It’s common for government ministries and agencies to hold meetings after major Communist Party and state events in order to show their backing for key policies. However, the PBOC’s comments were unusual in repeating Xi’s criticism of US “containment,” phrasing that wasn’t used in officials statements published by other departments on Wednesday.
“This is really a very strange statement for a central bank,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA. “My sense is that the central bank is preparing for potential sanctions,” she said, referring to possible penalties China could face from the US if Beijing provides military support to Russia.
Under Xi, who secured a precedent-breaking third term as president last week, the Communist Party has sought to increasingly centralize policy making. Premier Li Qiang, in his first State Council meeting since being appointed to his post, said Tuesday the body that runs the government is “first and foremost a political organ” and urged the participants to implement Xi’s instructions while endorsing his supreme leadership.
Duncan Wrigley, chief China economist at Pantheon Macroeconomics Ltd., pointed out the PBOC’s statement came out of a gathering summoned by the Communist Party committee of the central bank, rather than a “working” meeting on issues like monetary policy. “It’s normal for such comments — which are basically the national CCP’s viewpoint and worries — to be transmitted down in party committee meetings at the PBOC and elsewhere in the public sector,” he said.
The PBOC didn’t elaborate on what measures it could take to protect the economy from US “containment.” Some possible actions include stepping up financing support for tech companies, strengthening China’s cross-border payment system — known by its acronym CIPS — and diversifying the nation’s $3 trillion foreign exchange holdings, analysts said.
US-China tensions have escalated in recent months, especially over advanced technologies. The Biden administration has expanded export restrictions to curb Chinese firms’ access to US technology, while also rallying allies like Japan and the Netherlands to restrict exports of some chipmaking machinery to China.
Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd., said the PBOC’s pledge “will mainly manifest in financial support for technology and innovation.”
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To support domestic tech champions, the PBOC could potentially extend or expand the 200 billion yuan relending program launched last year that encourages bank loans to tech firms, he said. There could also be more supportive measures for tech companies’ financing through equity and bonds.
Herrero said if China is sanctioned by Western nations for providing military support to Russia, the PBOC could announce that CIPS — China’s fledgling cross-border interbank yuan payment system — could operate without the use of the SWIFT messaging system, which dominates global banking transactions.
Some Russian lenders were restricted from using SWIFT after the nation was sanctioned, effectively excluding them from the international banking system.
External Shocks
In a separate statement on Wednesday, the State Administration of Foreign Exchange, the nation’s foreign exchange regulator, pledged to push forward the opening up of China’s capital accounts and prevent “risks of external shocks.”
The PBOC’s statement also addressed concerns around financial stability. It vowed to “manage the pace of credit extension well,” ensure credit growth stays “reasonable” and do its best to stabilize growth, employment and prices, according to the statement.
The meeting was chaired by PBOC party secretary Guo Shuqing and attended by Governor Yi Gang, who was reappointed to his post over the weekend.
With global financial markets in turmoil following the collapse of Silicon Valley Bank, the PBOC vowed to strengthen the financial system to ensure stability and improve contingency plans. It also reaffirmed a pledge to step up support for private and small companies and push for the property market’s stable and healthy development.
–With assistance from Jing Li, Fran Wang and Lucille Liu.
(Updates with analyst comment in sixth paragraph.)
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