The flawed analogy of Chinese QE

WITH China’s central bank injecting cash in the financial system to support growth, commentators have been quick to dub it the start of Chinese-style quantitative easing. Analogies can be useful for explaining complex financial matters, but in this instance the comparison is more misleading than helpful. “QE” is a poor description of the way Chinese monetary policy works. It also overstates the degree of easing the central banks is undertaking.

Superficial parallels with the QE policies of America, Japan or Europe can be made. Just as central banks in those countries have bought government bonds and other securities from lenders to expand the money supply, so is the People’s Bank of China looking to do something similar. According to one report, it will acquire assets directly from commercial banks, just as the Federal Reserve did in buying mortgage-backed securities. Another has likened it to Europe’s “Continue reading