Posts tagged 'PBOC'

Making China’s FX reserves feel inadequate

Things that are not infinite include… China’s FX reserves. Even at $3.7trn.

It’s an obvious point, but maybe the point is worth remaking.

From Soc Gen’s Wei Yao: Read more

China’s ‘major correction’, charted and extrapolated

It’s indeed a major correction, say Goldman, surprising precisely nobody:

 Read more

Why China’s stock market implosion might not be very meaningful

Whilst there’s nothing like a Black Monday bloodbath in China to invigorate the bear case, it is worth bearing in mind that the Chinese stock market isn’t quite the NYSE.

Yes, Chinese investors have been turning to stock market investing at accelerating rates over the past decade, but despite all that growth, stock ownership is still the exception not the norm in China. And because it isn’t the norm, the feed through to the real economy is unlikely to be as significant as it would be in say, America, where every man and his dog is taught from birth to watch CNBC and to own a portfolio. Read more

Putting China’s cuts in some context

As you’ve surely just seen, China has cut its reserve requirement ratio, by 50bps with effect from Sept 6, and its 1yr lending rate by 25bps to 4.6 per cent with immediate effect.

Markets will like this. And the timing suggests that the ongoing stock market puke did have something to do with the decision.

But there’s also certainly a broader rationale to these moves. Read more

What are Chinese capital controls really? – Part 2

Here follows the second in a series of posts explaining why this week’s RMB depreciation is akin to the Great China Money Market fund breaking the buck.

But first a disclaimer! Whilst our analysis errs to the view that the depreciation was driven by market forces and thus inevitable, that’s not to suggest China “the market economy” is bust or about to face a hard landing. We’re very specifically talking about the state-managed part of the external capital account.

So, let’s continue from where we left off, namely, the point when the commodity super-cycle was sending the message that for China to have its rebalancing cake and eat it some major global restructuring probably would have to take place. Read more

What are Chinese capital controls really? – Part 1

To understand what happened in China this week we think the best financial analogy for China’s management of its economy and its external capital account is this: think of it as a giant money market fund.

So when the currency was officially devalued three times, it was equivalent to the Great China Money Market (GCMM) fund “breaking the buck”, a rare event when presumed safe investments turn out to not be so safe as thought.

We’re going to explain what that means in two posts, the first of which is the extended history of China’s economic management needed to realise how the world got to this point in the first place. Read more

This one time, at band camp, the PBOC did this thing

China weakened the renminbi fixing by 1.86 per cent overnight, an unexpected move followed by the biggest one-day change in the value of the renminbi since the country abandoned its dollar peg for a managed trading band.

There are two schools of thought on this: Either balance of payment problems are forcing China’s hand, or the move is just another step in the slow and benign process of capital liberalisation.

On the first, well hey, they would depreciate in the current environment wouldn’t they? Exports are weak, the economy is sputtering, and the stock market can’t stay up without the state introducing a ban on it going down.

Move to a free-floating currency system? Meh. This is just another desperate devaluation story in the style of Nigeria, Russia before them and even peg busting Saudi Arabia on the back of a hard-currency drought in the offshore FX market. (FT Alphaville has predicted this for like ages, yeah?). Read more

How’s that Zhou put working out for ya?

We’ll tear ourselves away from Greece to point out that Chinese markets are totally normal.

 Read more

Marketplace lenders and the Chinese path to a gift-card economy

Most of us know it as shadow banking. Others refer to it as non-bank lending. But a whole new nomenclature — “market-based financing” — is growing in popularity, making the whole thing sound a lot less shadowy, rightly or wrongly.

Nathan Sheets, Under Secretary for International Affairs at the Treasury, in any case urged us to call it that when he spoke about the phenomenon in a speech earlier this year, a sentiment that has also been echoed by the Financial Stability Board.

We refer to this because a similar rebranding effort is currently going on in the world of P2P lenders, many of whom now prefer to be described as operating in the sphere of “marketplace lending“. Furthermore, some analysts we’ve spoken to don’t consider P2P lenders to be shadow banking institutions at all. Some simply call this new source of financing “internet funds”. Read more

M0 money, more problems

… By the notorious PBoC?

To be clear, the issue here is falling M0 in China.

SocGen’s China watcher in chief Wei Yao suggests that this is perhaps more important to real growth than the normally fixated-upon M2. Read more

The CNY depreciation risk remains

Another BoAML FX observation on Thursday, this by way of Claudio Piron, emerging Asia FI/FX strategist, and his team.

On the analysts’ radar this week, the continuing risk of CNY depreciation, and in particular this chart:

 Read more

China’s changing monetary policy, charted

Some cut out and keep from Morgan Stanley:


 Read more

They yuan a war?

Clearly there are incentives for China to join the currency wars in earnest.

The RMB is up 6 per cent in Nominal Effective Exchange Rate terms since August 2014 with, say SocGen, the JPY, EUR, KRW and RUB the top contributors, accounting for 1.9pt, 1.3pt, 0.5pt and 0.4pt of the appreciation respectively. Honourable mention to the USD, naturally, against which the RMB is up 0.5 per cent.

 Read more

But… weren’t my deposits already insured? Yours, an average Chinese depositer

Well, kinda. Or that was the assumption ever since the closure of Hainan Development Bank in the 1990s, when household deposits were made whole courtesy of the fiscal chequebook and an implicit guarantee was born, at least.

But as of Sunday night there is the beginning of a delineation as the PBoC published its draft plan for setting up a real deposit insurance scheme in China. The highlights from Bernstein: Read more

I see currency wars

The first rule of currency wars is: you always talk about currency wars.

The second rule is: you can always find one to talk about if you look hard enough.

This month’s FX war location of choice is Asia, and here with its proximate cause is BNP Paribas (our emphasis): Read more

Wriggle room, the CNY, and the PBoC

More on that Friday PBoC rate cut — and just as China goes ahead and cuts its 14-day repo operation rate by another 20bp to 3.20 per cent too. That move on Tuesday, according to Nomura, suggests that the PBoC will continue to ease monetary policy… which would be true to form.

As Barc note, “the policy rate cut suggests that China is once again following the typical sequence in a monetary easing cycle – the pace of CNY appreciation is often slowed in advanced, followed later by the same directional moves in the policy rate and banks’ required reserve ratio.” Read more

Signal vs noise from the PBoC

Indeed, nobody expects the PBoC…

But, despite Friday’s surprise announcement, as SocGen’s Wei Yao says: “due to the further rate liberalisation announced at the same time, there is actually no de facto rate cut.”

She continues, (with our emphasis): Read more

No-one ever expects the PBOC

The People’s Bank of China likes to act unexpectedly. And Friday’s surprise announcement of a Chinese rate cut only confirms that being unexpected is indeed the PBOC’s preferred communications strategy.

As Reuters noted, this is the first Chinese rate cut in two years and lowers the benchmark lending rate by 40 basis points to 5.6 per cent. One-year benchmark deposit rates were lowered by a smaller 25 basis points.

But, as Marc Ostwald at ADM Investor Services International commented in an email, the timing of this move looks to be as much about the sharp appreciation of the Chinese currency versus the yen as the fact that China’s economy is experiencing difficulties, with both Chinese CPI and PPI remaining very benign. Read more

PBoC in the ascendant

Monetary policy probably not so much.

It’s a rare thing these days to see monetary policy taking the back seat but according to the WSJ an ever more influential PBoC is winning the argument against cutting interest rates and in favour of smaller more targeted measures like RRR cutsRead more

The curious incident of the PBOC in the USDCNY market

Something’s afoot in the world of RMB.

The renminbi fell on Tuesday by the most in a single day since 2012, dropping 0.35 per cent against the dollar in the onshore market by midday in Shanghai, and 0.7 per cent since Wednesday, as the FT reported.

The market has put this down to an imminent change in China’s foreign exchange regime. The narrative is that the PBOC is preparing to widen the trading band ahead of flotation and is spooking the market intentionally, so that it realises that the RMB goes down as well as up, and that carry-trades are no free lunch.

Not everyone is as convinced. Read more

Chinese credit semantics

From SocGen’s Wei Yao

Don’t mind bank lending, credit growth is still slowing in China

From UBS’s Wang Tao:

Don’t worry about aggressive credit tightening

From BoFAML’s Lu Ting:

Now you know the People’s Bank of China is not really tightening

 Read more

The PBOC’s big test

The PBOC conducted a 255 bn yuan ($42 bn) liquidity operation on Tuesday, causing money market rates — which had been running very high — to drop significantly.

As Bloomberg noted:

The seven-day repurchase rate, a gauge of interbank funding availability, dropped 88 basis points to 5.44 percent in Shanghai, according to a daily fixing compiled by the National Interbank Funding Center. It surged 153 basis points yesterday, the most in seven months. The Shanghai Composite Index climbed 0.9 percent today, after closing below 2,000 yesterday for the first time since July.

 Read more

The road to liberalisation is paved with certificates of deposit

Starting today we get what is basically the first formal step to a fully fledged market based deposit rate system from China (honourable mention of course to those more informal weapons of mass ponzi). It’s been coming and the move doesn’t effect corporates or individuals, but in the context of the Shibor spike, deposit pressure and the post-plenum reform blush it’s very worth noting.

From UBS’s Wang Tao:

[The PBOC] took the long-expected step toward liberalizing deposit rate on December 8, announcing that effective from December 9, depository financial institutions (banks) are allowed to issue large-denomination negotiable certificates of deposit, i.e., the so-called interbank CDs.

 Read more

The PBOC, Bitcoin, and Chinese aunties

Some are betting that Beijing will eventually endorse Bitcoin. This week Lightspeed Venture Partners of San Francisco and a China-based sister fund announced a $5m investment in BTCChina…

Financial Times, November 22

Oops.

The People’s Bank of China even did a Q&A on Thursday to explain why it’s more or less forbidden the Chinese financial system from dabbling in Bitcoin… Read more

Why $3.4tn in foreign reserves is not China’s escape hatch

By Paul J. Davies, the FT’s Asia financial correspondent.

After trying to work out how big China’s bad debt problem might be, many people still turn round and point to the country’s mammoth foreign exchange reserves as its great get-out clause. Read more

PBoC tightening by stealth?

As we noted a week ago, there was some recent anxiety that Chinese interbank markets were again freezing up, with Shibor rates jumping again as the end of month neared.

A couple of days later, several reports emerged that the People’s Bank of China was coming to the rescue by conducting reverse-repo operations for the first time since February, injecting a net Rmb17bn. Read more

A big PBOC bluff?

The PBOC’s “this is not the liquidity crisis you’re looking for” statement at the weekend may have drawn attention, but it didn’t really manage to reassure equity markets. The Shanghai Composite closed over 5 per cent lower on the day:

 Read more

China’s liquidity crunch, and what it means for everyone

Should you panic?

It’s hard to know exactly what degree of control the PBoC has over the events unfolding in China’s interbank markets.

On the one hand, making the smaller banks and shadow finance entities sweat fits with the central bank’s new high-priority goal, introduced late last year, of containing ‘financial risks’, and also with a broader government theme of clamping down on excess. Read more

Caption contest! Mervyn’s little red book edition

Ostensibly, this is Governor Mervyn King and Governor Zhou Xiaochuan celebrating the RMB 200bn currency swap announced between their two central banks this weekend.

 Read more

PBoC says banks can just deal with it

In case it wasn’t clear enough that the People’s Bank of China is mostly okay with the squeeze in interbank liquidity, it came out with another signal today.

To recap – last week, when the key seven-day Shibor repo rate spiked above 10 per cent, the PBoC maybe injected extra liquidity to certain banks. Or maybe, as a source of our FT colleague Simon Rabinovitch tells it, what it *actually* did was just tell the big banks to stop worrying and just start lending, dammit.  Read more