CN China unexpectedly cuts 2 key rates, withdraws cash from banking system

China unexpectedly cuts 2 key rates, withdraws cash from banking system​

SHANGHAI, Aug 15 (Reuters) - China's central bank unexpectedly cut a key interest rate for the second time this year and withdrew some cash from the banking system on Monday, to try to revive credit demand to support the COVID-hit economy.

Economists and analysts said they believe Chinese authorities are keen to support the sluggish economy by allowing a widening policy divergence with other major economies that are raising interest rates aggressively.

The People's Bank of China (PBOC) said it was lowering the rate on 400 billion yuan ($59.33 billion) of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.75%, from 2.85%.

In a poll of 32 market watchers last week, all respondents had forecast the MLF rate would be left unchanged and 29 had predicted there would be a partial rollover.

"The rate cut surprises us," said Xing Zhaopeng, senior China strategist at ANZ.

"It should be a response to the weak credit data on Friday. The government remains cautious about growth and will not let go."

New bank lending in China tumbled more than expected in July while broad credit growth slowed, as fresh COVID flare-ups, worries about jobs and a deepening property crisis made companies and consumers wary of taking on more debt.

he PBOC attributed its move to "keep banking system liquidity reasonably ample". And with 600 billion yuan worth of MLF loans maturing, the operation resulted a net 200 billion yuan of fund withdrawal.

Market participants have largely priced in the partial rollover as the banking system was already flush with cash, with interbank money rates hovering at two-year lows and persistently below policy rates.

"Now with hindsight, today's 10-bp cut may be seen as 'front-loading' before the policy room gets narrower going forward as the PBOC sees structural inflation pressure," said Frances Cheung, rates strategist at OCBC Bank.

The PBOC reiterated it would step up the implementation of its prudent monetary policy and keep liquidity reasonably ample, while closely monitoring domestic and external inflation changes, it said in its second-quarter monetary policy report.

"Despite the warning of inflation risk and flush liquidity condition, the dominating downside risks under the COVID spread and property-sector rout prompted the PBOC to cut rates to stimulate demand," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

China's 10-year treasury futures jumped more than 0.7% in early trade following the rate decision, while yields on sovereign bond for the same tenor fell about 5 basis points.

The central bank also injected 2 billion yuan through seven-day reverse repos while cutting the borrowing cost by the same margin of 10 bps to 2.0% from 2.1%, according to an online statement.

The PBOC lowered both rates by 10 bps in January.

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[Snekposter]

Wow, I can see absolutely no consequences from China trying to keep an investment bubble propped up by offering easy money to bankers and investors. None at all.

 

[Stoneheart]

unexpectedly? have they not watched any of the China channels on youtube?
i have seen bankruns in china for the last 3 months atleast. also pretty much every industry in china has big big problems.

 

[UmQasaan]

What is this frothing at the mouth obsession with the west for China's collapse. It's been this way for about two decades. Is it just a coping mechanism?

 

[Sincere Irony LLC]

2 more weeks and China is finished. Truly this is the end for them. Western nations will be vindicated and the truth will be revealed that only Western nations have the truest most honest and correct form of government and leaders.

 

[northstar747]

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What is this frothing at the mouth obsession with the west for China's collapse. It's been this way for about two decades. Is it just a coping mechanism?

I know but thats not just china youtube encourages those stupid thumbnails with FIRE and GRAPH going down.

China has alot of internal problems and they dont have to be public about them ether.

But it seems like they speed ran the 2008 housing crisis/banking crisis. And I look forward to see how it shakes out.

 

[WULULULULU]

But it seems like they speed ran the 2008 housing crisis/banking crisis. And I look forward to see how it shakes out.

You'd think that being the "center" of the world, munching lower nations, becoming an icon for the WEF and a factory shithole for 99% of international products would make them learn the history of the world but seems like Big Pooh never learned anything. Just wait till the world collapses and China goes "dindu nuffin".

 

[God of Nothing]

and they wonder why their new generation wants it to rot

 

[Judge Dredd]

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What is this frothing at the mouth obsession with the west for China's collapse. It's been this way for about two decades. Is it just a coping mechanism?

Those are clickbait thumbnails like @northstar747 said, but in general it can feel like the opposite.

MSM and Hollywood repeated beat the drum about how China is crushing the west industrially and is going to become the leader of the world and blah blah blah. But when the plebs (YouTubers included) take a closer look they find China to be a paper tiger.

So while the MSM is finding China's economic collapse surprising, or simply doesn't cover it at all, lots have people have seen this coming for a while.

 

[northstar747]

MSM and Hollywood repeated beat the drum about how China is crushing the west industrially and is going to become the leader of the world and blah blah blah. But when the plebs (YouTubers included) take a closer look they find China to be a paper tiger.

Here are some issues china has.

Internal politics, Xi brought back the cult of personality and culturally he s the emperor, and just like the days of the emperor, you murder the messenger and purge anyone that causing you to lose face.

As the saying go "the mountains are high and the emperor is farway" meaning local people will do what ever the fuck they want while paying lipservice. Its why the chinese fought themselves so many times.

Economic, because of bad internal management and civil wars china had a lack of infrastructure. Well when you build the infrastructure you start to get a return on investment and improvements. Problem is that china wanting to speed run industrialization has over invested in infrastructure. The ROI's on project most likely went negative years ago.

The belt and road projects are basically busy work, the projects use chinese loans, chinese, workers, chinese materials.

Socail ills, The chinese fucked themselves with the one child policy They have a huge sex imbalance and the population is aging fast.

Also the younger generation knows their parents standard of living improved but things have stalled out for them hence the laying flat trend.

military...you have to pay to join the PLA you have to pay to move up the ranks, also I think the level of skill PLA soliders have in terms of training make russia look good.

china has to import raw materials, food, and energy and they lack a navy able to do that.

But back to my thesis about the banks. The CCP has tools America didnt/doesnt have when subprime blew up so I d like to see their take on fixing the issue.

 

[Gar For Archer]

Here are some issues china has.

Internal politics, Xi brought back the cult of personality and culturally he s the emperor, and just like the days of the emperor, you murder the messenger and purge anyone that causing you to lose face.

As the saying go "the mountains are high and the emperor is farway" meaning local people will do what ever the fuck they want while paying lipservice. Its why the chinese fought themselves so many times.

Economic, because of bad internal management and civil wars china had a lack of infrastructure. Well when you build the infrastructure you start to get a return on investment and improvements. Problem is that china wanting to speed run industrialization has over invested in infrastructure. The ROI's on project most likely went negative years ago.

The belt and road projects are basically busy work, the projects use chinese loans, chinese, workers, chinese materials.

Socail ills, The chinese fucked themselves with the one child policy They have a huge sex imbalance and the population is aging fast.

Also the younger generation knows their parents standard of living improved but things have stalled out for them hence the laying flat trend.

military...you have to pay to join the PLA you have to pay to move up the ranks, also I think the level of skill PLA soliders have in terms of training make russia look good.

china has to import raw materials, food, and energy and they lack a navy able to do that.

But back to my thesis about the banks. The CCP has tools America didnt/doesnt have when subprime blew up so I d like to see their take on fixing the issue.

You left out the biggest one: the utterly fucked real-estate investment market. Because the CCP restricts foreign investment, real estate is the only place to dump cash for the average Chinese, but their real estate market is literally a giant Ponzi scheme. With how fucked things have been getting, people have decided to collectively stop paying their mortgages on apartments that may never be finished (or even started), and the bubble is basically ready to burst at a moment’s notice. It could happen tomorrow, it could happen next month, it may hold out another year… but it will burst.

 

[IAmNotAlpharius]

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What is this frothing at the mouth obsession with the west for China's collapse. It's been this way for about two decades. Is it just a coping mechanism?

A lot of it is the Streisand effect actually. Part of the obsession for many channels, started over a single video getting copyright struck, usually of a protest. It’s well known that showing the protest which did not happen is a good way to get your video taken down because it’s copyrighted material of the CCP. Some of them would go on to make channels specifically about China while others just make more frequent videos on it.

The other reason it’s a trend is because most Americans were unaware of demographics and assumed that like Japan before it, that they were unstoppable. This image was encouraged by the CCP and even Obama.

 

[Matt Damon]

people have decided to collectively stop paying their mortgages on apartments that may never be finished (or even started)

That's the really wacky part.

It's like the 2008 housing bubble, except there aren't even any homes to be foreclosed on when the mortgage goes into default.

 

[Your Starter for 10]

Well the good news is that everyone will own up to their mistakes and be more responsible in the future. That should be the end of it, and I don't expect to hear any more repercussions from this small economic hiccup.

 

[Kuritan Deplorable]

Because the CCP restricts foreign investment, real estate is the only place to dump cash for the average Chinese, but their real estate market is literally a giant Ponzi scheme.

Problem is that china wanting to speed run industrialization has over invested in infrastructure. The ROI's on project most likely went negative years ago.

And this all compounds into each other. China engages in massive state investment in manufacturing for things such a steel. Their economy has to sink these resources somewhere, and infrastructure and real estate were the primary targets. With the latter collapsing and the former being even more difficult for local governments to fund with said deaths, there's nowhere for this massive glut of state-produced materials to go. This requires them to intensify dumping on the global markets, which would have massive ramifications for their currency values in a period where they're pushing harder than ever to be a reserve currency competitor. Or they reduce production, which would drive massive economic instability as they cripple entire cities built around these manufacturing concerns.

View attachment 3602384
What is this frothing at the mouth obsession with the west for China's collapse. It's been this way for about two decades. Is it just a coping mechanism?

Because its fun, interesting, and its baffling that they haven't had a correction so far. The last couple decades were just generic industrialization growth lampshaded as government policy and superior leadership by politicians, but now they're huffing their own farts and losing the plot. They're basically trying to speedrun the dotcom bubble and the 2008 bubble at the same time, while also overheating every other sector of their economy, and freezing out half the populace at times from participating at all with the zero covid policy. You could make a drinking game out of guessing the next bad decision they make.

Then combine that with youtube/social media's requirement to constantly escalate a narrative with clickbait, and "Concurrent bad economic and policy decisions in a weak global economy" becomes " CHINA IS LITERALLY DYING GUYS ITS OVER".

 

[northstar747]

This requires them to intensify dumping on the global markets, which would have massive ramifications for their currency values in a period where they're pushing harder than ever to be a reserve currency competitor.

No not really.

A reserve currency requires a few things. a big one is that you need enough of it. So it has to be deep.

Another problem is that if you have economy that depends on exports there will always be a desire to manipulate it, to goose export numbers. China has this issue is spades along with japan, and the EURO.

I keep thinking given all the bad choices the US makes from printing 3 trillion dollars to the FED being retarded etc, that people would want to leave the dollar. But one aspect of the US economy is that our exports are about 10% of GDP, and some of that is basically trade with canada and mexico. Basically US money is disinterested in gobal trade system at large. Thats the appeal of US dollars.

China cant go reserve nor can russia. Though I can see how the US abuses the SWIFT system to punish nations would be in the interests of states like north korea, china, russia, iran, and who ever else to create their own wire finical system to side step stuff. But again it would require these states to work together and I can just see them jockeying for stuff.

 

[Kuritan Deplorable]

China cant go reserve nor can russia.

I never said they'd succeed. China has myraid problems with its currency that make it unlikely to be a competitor, issues far greater than the current USD issues. I just said that they're trying, and their other economic activities and options would make this try of theirs even harder.

 

[Honored guest]

You left out the biggest one: the utterly fucked real-estate investment market. Because the CCP restricts foreign investment, real estate is the only place to dump cash for the average Chinese, but their real estate market is literally a giant Ponzi scheme. With how fucked things have been getting, people have decided to collectively stop paying their mortgages on apartments that may never be finished (or even started), and the bubble is basically ready to burst at a moment’s notice. It could happen tomorrow, it could happen next month, it may hold out another year… but it will burst.

And when it crashes its going to take China's construction industries with it, and that will take out China's steel industry, which will cause global steel prices to explode, and since every western country got rid of their own steel manufacturing in favor of cheap chink metal its going to hurt. When the real estate crashes in China its going to have a truly massive domino effect that will go global and will cause a recession/depression.

 

[Gar For Archer]

And when it crashes its going to take China's construction industries with it, and that will take out China's steel industry, which will cause global steel prices to explode, and since every western country got rid of their own steel manufacturing in favor of cheap chink metal its going to hurt. When the real estate crashes in China its going to have a truly massive domino effect that will go global and will cause a recession/depression.

From some quick googling, it seems like despite the decay of the domestic steel industry, America still does produce most of the steel that it uses, and imports most of the remainder from Brazil, Mexico and Russia. From the info I can find, Chinese steel seems to account for about 2% of US steel consumption; most of their exports go to other Asian countries, with Europe also taking a significant share. While I'm sure there will be knock-on effects from the rest of the world's economy collapsing, as far as actual steel consumption goes the US should be taking only a relatively light hit.

 

[northstar747]

Huh look at that.

From some quick googling, it seems like despite the decay of the domestic steel industry, America still does produce most of the steel that it uses, and imports most of the remainder from Brazil, Mexico and Russia. From the info I can find, Chinese steel seems to account for about 2% of US steel consumption; most of their exports go to other Asian countries, with Europe also taking a significant share. While I'm sure there will be knock-on effects from the rest of the world's economy collapsing, as far as actual steel consumption goes the US should be taking only a relatively light hit.

again US economy is just not that plugged into the global trade net work.

Yes we off shored a tone of jobs. In fact if you think about the 1990s you had 2 things happen. USSR fell and china opened up, you got all the raw materials from russia wood, oil, metal etc and china's billion strong work force will to work for peanuts.

As for steel we recycle alot of steel, also china doesnt make high value steel, and instead imports it.

Also with the covid caused supply chain issues alot of companies are seeing that moving out of china or reshoring manufacturing to use or mexico has some value.

My personal thoughts are 1990-mid 2000's china got the fucking money and for being a planned economy their plans arent going to pay out.