Posts tagged 'PBOC'

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

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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.

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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.

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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:

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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.

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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

Chinese monetary policy, with Maoist characteristics

We looked earlier on Thursday at whether the PBoC and other Chinese authorities have engineered the recent squeeze in China’s interbank markets (answer: yes) and why they might be choosing this moment to do so (answer: somewhat more complicated).

Chinese interbank rates according to Shibor are incredibly high — and yet, apart from the report of a special ‘targeted liquidity operation’ for the benefit of one, unnamed bank, the central bank appears to be resisting pleas to ease up on liquidity provision.

So, what gives? Read more

GMO on China’s subprimey financial innovations

A new and scary note is out about China’s risk from GMO’s Edward Chancellor and Mike Monnelly, who make a good argument that China’s financial system is showing many of the hallmarks of a not-too-distant bubble:

China’s thriving shadow banking system has much in common with the American version, which thrived before Lehman’s collapse: trust loans that finance cash-strapped property developers have a whiff of the subprime about them; wealth management products that bundle together a miscellany of loans, enabling the banks to generate fees while keeping loans off balance sheet, bear a passing resemblance to the structured investment vehicles and collateralized debt obligations of yesteryear; while thinly capitalized providers of credit guarantees are reminiscent of past sellers of credit default insurance.

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How vulnerable is Japan’s economy to the islands dispute?

Markets in Asia were apparently very skittish earlier today in partdue to fears that earnings could be affected by tensions between Japan and China over the Senkaku/Diaoyu islands. This in turn was no doubt exacerbated by the news that not only are the big four Chinese banks skipping this week’s IMF meeting in Tokyo, but the PBoC governor and the finance minister are also sitting it out, instead sending along their respective deputies.

From Bloomberg: Read more

Don’t be alarmed about China’s balance of payment deficit (yet)

China’s balance of payments deficit in the second quarter was its first such deficit since 1998, and it attracted a lot of attention. Together with other bits of data about currency flows, it heightened fears about whether there was some kind of capital flight out of the country, and what it would mean for domestic monetary policy just as the economy became slightly stretched — but still somewhat inflationary.

But it’s not so bad, Societe Generale’s Wei Yao says. Yao looked through the details of the State Administration of Foreign Exchange data from Q2 and reckons most of it can be explained by fairly normal changes associated with the authorities’ tentative steps towards renminbi internationalisation: namely, an increase in private foreign currency deposits (as opposed to the official reserves), and credits to foreigners on domestic banks’ balance sheets. Read more

One for the China bull(s)

Don’t say we never do anything nice for you. We found four positive signs this week, and while at least three of them might raise more questions than they answer, China bulls should probably just enjoy the moment.

1. New loans data for August looks positive Read more

China’s bad-debt nightmare

Not our words but Societe Generale’s, or at least their China macro strategist Wei Yao, who believes credit risk is worse than official non-performing loan data suggests.  So much worse that — while government intervention will prevent an outright crisis — a “multi-year and bumpy” landing is now expected by SocGen.

Non-performing loans are still at a fairly low level of 0.9 per cent across China, notes Wei, although about three times that amount are “special mention” loans, or those in doubt but still performing. Rates can also rise quickly, thanks in part to China’s tangled shadow banking system: in one year, Wenzhou went from the lowest rate of any Chinese city at 0.37 per cent to 2.85 per cent at the end of July. Read more

China’s unprecedented liquidity injection

As we noted earlier, the People’s Bank of China is continuing to inject huge sums of liquidity into the monetary system via so-called “reverse repos” (the equivalent of conventional central bank repos elsewhere). According to Chinascope, the latest round of easing supplied a record Rmb220bn to the market in exchange for collateral.

The seven-day operation was priced at 3.40 per cent (Rmb150bn) while the 14-day operation was priced at 3.60 per cent (Rmb70bn). Read more

PBoC ramps up liquidity operations

The People’s Bank of China helped Asian stocks rally on Tuesday with a reported record liquidity injection via reverse repos. From Bloomberg:

The People’s Bank of China conducted 220 billion yuan ($34.6 billion) of reverse-repurchase operations, the most in a single day, according to a trader at a primary dealer required to bid at the auctions. The government may introduce new policies to boost consumers’ borrowing and spending this year, the Economic Information Daily reported today, citing an unidentified person. Read more

China data inspires hope, disappointment… and a dilemma

Oh yay, Chinese consumer price inflation for July came in at a nicely subdued looking 1.8 per cent. And industrial production growth continued to slow. Q2 wasn’t the bottom after all. More easing ahoy! Right?

Not so fast… Read more

The sound of falling Chinese USD reserves…

Could it be true? Did China’s USD FX reserves really fall in the second quarter?

Certainly seems so. Here are the details via ChinaScope on Wednesday: Read more

How things change, China FX manipulation edition

Mitt Romney, aspiring US president-to-be, has notoriously declared that if he ever takes office he will immediately name China a “currency manipulator”.

This, of course, is an ironic turn of events, given that China stopped being an outright currency manipulator a while ago. Read more

China’s transmission mechanisms in a knot

One of the enduring arguments about China is that the government has ample firepower to sort out the country’s economic challenges. All that fiscal surplus, all those USD reserves. Firepower to burn.

Yet it’s looking increasingly difficult for policymakers to ward off a hard landing without re-igniting inflation and of course, enhancing the country’s already extreme concentration on investment rather than consumption. Read more

China’s asymmetrical and anti-bank rate cut

Everybody’s talking about China’s unexpected rate cut. But here’s why this particular rate cut is a little bit different.

It is, as Chinascope explains on Friday, asymmetrical: Read more

PBOC, not leaning against the wind anymore

First, in a sign that Chinese woes are definitely rising and that authorities are now sufficiently concerned, we bring you news that China cut rates on Thursday (via Bloomberg):

China cut interest rates for the first time since 2008, stepping up efforts to combat a deepening economic slowdown as Europe’s worsening debt crisis threatens global growth. The one-year deposit rate will drop to 3.25 percent from 3.5 percent effective tomorrow, the People’s Bank of China said on its website today. The one-year lending rate will fall to 6.31 percent from 6.56 percent. Banks can offer a 20 percent discount to the benchmark lending rate, the PBOC said, widening from a previous 10 percent. Read more

China’s mega dash for the dollar

We noted last week that there was a rising tussle over dollars in China, spurred by capital outflows and RMB-denominated selling on signs that the world’s key economic powerhouse may be slowing. A situation which was arguably thrusting China into a dollar short position.

While that might seem counterintuitive given China’s substantial longer-duration dollar assets, it is possible because of China’s substantial short-term dollar liabilities. Essentially, we’re talking about a dollar-denominated duration mismatch on the mainland at a time when China is running one of its largest outstanding external debt positions for 27 years. Read more

RRR cuts ≠ credit easing. Keep saying it.

Pretty much every China watcher, including us, has written in recent months about how reserve ratio requirement (RRR) cuts by the People’s Bank of China are not necessarily about credit easing. In fact these days, an RRR cut is not so much a move to make more credit available as it is to avoid reductions in liquidity.

Mark Dow, portfolio manager at Pharo Management, has a nice explanation of how this is, and where the RRR fits into the PBoC’s broader monetary policy. It starts with the policymakers’ credit expansion targets, which are believed to be about Rmb8tn to 8.5tn this year: Read more

That’s Governor Zhou to you

That’s pronounced a bit like “Joe”, but with a softer ‘g’ sound. According to Standard Chartered you need to start practising –  because People’s Bank of China governor Zhou Xiaochuan is “the world’s central banker”.

StanChart note that everyone already knows China has the world’s largest stock of M2 money. Read more

CIC eyes bigger role in Chinese FX reserves

China Investment Corp hopes to gain continued funding from the Chinese government, matching the financing of ‘mature’ sovereign wealth funds in the west, its executive vice president Wang Jianxi has told the WSJ. CIC has just received a $30bn capital injection to pursue further overseas investments. A regular stream of funds would make CIC more important still in diversifying China’s vast FX reserves. Zhou Xiaochuan, governor of the People’s Bank of China, has in the meantime indicated that the renminbi’s trading band might be widened in the near future, the FT says.

When nobody expects a Chinese RRR cut

On Saturday, China’s central bank cut its reserve requirement ratio (RRR) for the second time in less than three months, a move which was expected — though just not now.

Societe Generale’s Wei Yao earlier this month said a cut was unlikely before March, given the fuzzy picture painted by data affected by the lunar new year. Wei believes Saturday’s move was unlikely to have much of an effect, because of the leverage limits applying to smaller banks: Read more