Monday, January 23, 2017

Chinese Tidbit

From the WSJ moneybeat blog:
China’s central bank extended support on Friday to a group of unnamed but large banks...  the People’s Bank of China extended a longer-term but temporary liquidity facility... Details on the facility were typically vague. In recent weeks it has also injected record amounts of cash. 
The move gives banks some breathing room for now, just as interbank liquidity stresses escalate. The new facility, analysts from ANZ say, doesn’t require banks to post collateral like other facilities typically do. And it makes it easier for them to reach a key regulatory barometer that monitors banks’ liquidity risk in cases of stress in the short term. A helping hand can lighten another burden–but not for long.
"Interbank liquidity stresses" and central bank long term "loans" without collateral are not a good sign. An escalating war on capital flight is not a good sign either.


  1. I have read that fifty percent of the Chinese upper middle class want to get their children out of China. If that is true then it pretty well guarantees ongoing capital flight.

    It seems fairly clear to me that the end game for the Chinese "banking" sector was always that the government would have to effectively assume a lot of bank debt or risk widespread social unrest.

    A China that suffers a melt down in its financial sector may build fewer subsidized primary steel and aluminum plants but will become an even more ferocious global competitor in less capital intensive manufactured goods.

  2. For many years, the People's Bank of China has simply bought bad loans from banks. This is not Western-style economics, but it has created a sturdy bank system immune to collapse. And China is below their inflation targets anyway. (And are Sino bailouts all that different from U.S. bank bailouts and QE?)

    At this point, the PBOC needs to let the yuan depreciate. I am not sure why their skittishness on this score. Some say there is fear "hot money" will leave China and the Far East for higher interest rates in the West. My guess is China should just get it over with and let the yuan depreciate. Maybe they have Trump in mind.

    I concur with Absalon's sentiments that many Chinese upper-class people want a foothold in the West. Well, duh. If you lived in a nation where even a novel or web chat room is obliterated, you would want out too. Chinese political leadership is incredibly backward an getting worse.

    Still, I suspect the Chinese bank system is very sturdy, and they will see again 6.5% GDP growth in 2017. You see serious major property investors, such as BlackRock, buying Sino assets. Cruise lines building $500 million ships to play the China coast. Japan flooded with Chinese tourists (which President Xi is clamping down on).

    The China model may prove very sturdy, despite Western nose-holding. They use their central bank to cull out bad debts from the banking system, and let the banks go forward.

    As for housing appreciation, they have the same problem as in the US: Property zoning.

    Indeed, urban property zoning, and how much urban property soaks up capital from banks is one of the under-addressed issues of today. About 80% of US bank lending is on property, zoned property. A good that is artificially scarce.

    As the capital flows in, the prices go up, validating the bank loans already made, and encouraging more.

    If the Fed tightens too much…your house of cards falls down.

  3. Pretty tough to mock this...since the ECB, FED, BOE....all printed trillions to rescue their banker class. Crony capitalism seems to be taking over and delivering record income inequality and political instability. Fancy that moral hazard is the capitalism not communism.


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