The “impossible trinity.”
The authorities in China are in a desperate juggling act, trying to keep a growing number of rotting oranges, porcelain plates, burning torches, and explosives in the air all at the same time. But it’s not working very well anymore.
Thursday morning, the People’s Bank of China injected 340 billion yuan ($51.9 billion) into commercial banks via reverse repurchase agreements, after having already injected 440 billion yuan on Tuesday. As 190 million yuan of prior reverse repurchase agreements – a type of short-term loan – have matured, the net injection of cash this week amounted to 590 billion yuan, or $89.7 billion, the most, according to the Wall Street Journal, since February 2013.
If the purpose was to prop up confidence in stocks, it worked only for about an hour then failed miserably. The Shanghai Composite Index plunged 2.9% on Thursday, to 2656, the lowest since November 2014. The Shenzhen Composite plunged 4.2%, the ChiNext 4.6%. The Shanghai Composite is now down 13% since Monday morning and 49% since last June.
Part of this ongoing massive cash injection is in preparation for the Chinese New Year holiday starting February 7. And part of it is to keep everything afloat in a sea of liquidity, even as this liquidity is draining out the back in unprecedented quantities.
To fight the effects of capital flight, China has been selling down its vaunted foreign exchange reserves, which plunged by $108 billion in December, the largest decline ever. For the year, they fell $510 billion, or 13%, to $3.3 trillion, the lowest since November 2012. Money is fleeing China [read…. What Will China Dump Next, After Treasuries, to Keep Control?]
Much of this money is landing in the US. For example, plans have now emerged for a Chinese company, using Chinese money, to build a development in San Francisco that consists of two towers – including the second-highest in the city, behind the under-construction Salesforce Tower – and some other buildings, which are all part of a dizzying building boom here.
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