Nary a week has gone by this year without news of China’s extraordinary injections of cash into its own economy. The central bank has pumped hundreds of billions of yuan into the financial system through an admixture of short-term, open-market operations; medium-term credit instruments; and direct loans to state-owned banks. Many have described it as Chinese-style quantitative easing (QE). When a central bank buys up a large amount of assets to expand its balance-sheet, it is indeed a modern-day form of money printing, and deserves to be labelled as QE. There is just one rather inconvenient fact when Chinese finances are examined more closely: in purely quantitative terms, the central bank has been tightening, not easing. And it has been doing so for several years already.
The chart below shows the balance-sheets of the world’s four major central banks. The QE paths of the Federal Reserve, the European Central Bank and the Bank of Japan are well documented by the size of their assets, depicted by the blue lines in the chart. The Fed’s balance-sheet swelled in three large steps: QE1, primarily in 2009; QE2, from late 2010 to mid-2011; and QE3, the final surge that started in late 2012 and ended last year. For the ECB, the squiggle shows a brief lift from the cheap loans it provided to banks in 2011 and 2012, followed by a retrenchment as concerns about potential inflationary consequences prevailed, and then a big rise since the start of this year, when it officially launched QE. Japan’s trajectory has been pretty much straight up since April of 2013 when Haruhiko Kuroda, the BoJ’s governor, first fired his monetary bazooka.
The Economist