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China still has policy space for normal monetary policy to support the economy, People’s Bank of China’s Vice Governor Pan Gongsheng said on Tuesday. “The economic impact from COVID-19 outbreak has exceeded expectations,” Pan further noted.

Additional takeaways

“Chinese banks’ asset quality could be affected as the economy faces downward pressure.”

“New innovative policy tools to boost small banks’ lending to small firms are short-term policy arrangements, not QE.”

“Big banks should also step up lending to small firms, although they won’t get policy support.”

“Small banks will get interest-free loans based on 40% of their lending to small firms via innovative policy tools.”

“We must step up monetary and credit policy support.”

Market reaction

These remarks don’t seem to be having a significant impact on market sentiment. As of writing, S&P 500 futures were up 0.42% on the day.