The PBOC has eased monetary policy for nearly three quarters but credit growth remains weak. Traditional engines of lending growth are subject to regulatory limits and restrictive capital requirements, and China still lacks strong institutions for differentiating credit risk among private companies. These conditions have extended the lag between easing and a pickup in economic activity, and some private firms have taken matters into their own hands by partnering with state firms. Credit will recover as additional easing occurs, and infrastructure will likely be the first sector signaling a rebound in activity in the coming months. In the long run, however, policymakers will need to ensure that sufficient, market-directed financing is available to the private sector.
