China shifts bank lending as Beijing cuts direct steering

It has shifted to a market-based approach, from reliance on window guidance.

The Chinese government has dialed down its direct steering on bank lending, favoring market-oriented tools to channel funding to policy-supported sectors, according to S&P Global Ratings.

"China is reducing government distortion in banks' risk pricing," said Yutong Zou, credit analyst for S&P Global Ratings. "Downside pressure on bank profitability could ease and credit growth would be better supported."

Beijing's latest fiscal package has shifted to a market-based approach for channeling bank funding to policy-supported sectors, Zou said. Previously, it relied more on window guidance.

The government has announced a RMB100b special fiscal fund to cover spending for six policy instruments, four of which are loan interest subsidy programs targeting personal consumption, the service sector, micro, small, and mid-size enterprises, and equipment renewal.