PBC to remit $158.33b of profits to central coffer as China prioritizes economic stability
Published: Mar 09, 2022 09:02 PM
People pass by the People's Bank of China in Beijing. Photo: VCG

People pass by the People's Bank of China in Beijing. Photo: VCG

In a rare late-night announcement on Tuesday, the People's Bank of China (PBC), the country's central bank, revealed the remittance of more than 1 trillion yuan ($158.33 billion) of its profits to the central coffer this year, as part of a broader effort to stabilize the economy amid multi-faceted uncertainty.

The remittance, a common practice among global central banks, doesn't signify incremental stimulus or the monetization of fiscal deficits, analysts said.

The profits to be handed over to the central government budget are mainly used to offset tax refunds and increase transfer payments to local governments, offer bailouts to businesses, and stabilize employment while ensuring people's livelihoods, read the PBC statement. 

The profits mostly come from the central bank's proceeds from its foreign-exchange reserves operations, which won't add to tax burdens and aren't tantamount to fiscal deficits, according to the statement, noting that the remittance wouldn't result the central bank enabling a budget deficit.

With the handover of the profits per month and in a balanced manner, the size of the PBC's balance sheet remains stable, an indication of monetary policy and fiscal policy acting in concert to jointly steady the mainstay of the macro economy, per the central bank.

The 1 trillion yuan in PBC profits is already included in a total of 2.3 trillion yuan of funds to be transferred this year, thereby not indicating incremental spending, Nomura economists led by Lu Ting said in a research note sent to the Global Times on Wednesday, citing the budget's fiscal spending projection.

The country lowered its target of the deficit-to-GDP ratio to 2.8 percent for 2022 from last year's 3.2 percent, according to the recently released annual government work report.

Prioritizing stability while pursuing progress is among the key takeaways from the government work report, which set a stronger-than-estimated GDP growth target of around 5.5 percent for this year.

"After adjusting for the 2.3 trillion yuan in fund transfers, the fiscal deficit as a percentage of GDP actually stands at 4.6 percent, up from last year's final number at 3.8 percent," the economists said, noting that "it might be wrong to assume that the 1 trillion yuan will be immediately injected to the economy."

The PBC is by no means alone in handing over its profits. The US Federal Reserve, for instance, sent $107.4 billion out of its estimated annual earnings that totaled $107.8 billion to the US Treasury in 2021. 

As to market estimates that the profit transfer implies an injection of 1 trillion yuan into base money, equal to a 50 basis point reserve requirement cut, the Shanghai Securities News said in a report on Wednesday that it's not equivalent to such a cut, but it could help revitalize the economy in a way similar to that resulting from reduced reserve requirements for banks.