Analysis-China’s policy dilemma: is boosting credit deflationary?

China's central bank faces a major hurdle in quelling the threat of deflation: more credit is flowing to productive forces than into consumption, exposing structural flaws in the economy and reducing the effectiveness of its monetary policy tools. The People's Bank of China (PBOC) is under pressure to cut interest rates as falling prices raise real borrowing costs for private businesses and households, curbing investment, hiring and consumer spending.