Is the US quantitative easing more effective than China's? A second thought

- We study the recent quantitative easing practice of the People's Bank of China and the Federal Reserve Bank.
- We focus on the expansion of excess reserves and the effect of QE on financing to the real economy.
- Both countries have followed reserve-driven growth strategies but the economic results are very different.
- The US QE is constrained by the zero lower bound and is less effective than China's.

We study the balance sheet of the People's Bank of China and the Federal Reserve Bank in a historical context and analyze whether the recent round of global expansionary monetary policy has been effective in achieving its desired economic effects. In particular, we focus on the roles played by excess reserves, monetary aggregates and financing to the real economy and highlight the tension between a liquid financial sector and an illiquid real sector. We show that, while both China and the US have followed reserve-driven growth strategies, the compositions and relative sizes of these quantities are quite different. In relative terms, excess reserves and lackluster corporate lending constitute a big problem for the US, whereas for China the pertinent question is how to further mobilize funds tied up in the real estate and stock market. We provide some thoughts on possible solutions to the current policy dilemma at the end.