Home » Posts tagged 'people’s bank of china' (Page 3)

Tag Archives: people’s bank of china

It has been another trade war week, as the market has been looking for clues on the Chinese retaliation measures against the Trump tariffs that are planned to go live on 6 July.

Global trade momentum started to weaken even before the trade conflict escalated. The three months from February until April marked the weakest running 3-month period for world trade since early 2015. A bad sign given that the period included a temporary cease-fire between Trump and Xi Jinping. Usually it adds downwards pressure on 10yr bond yields, when world trade is slowing (at least initially). A further slowdown of global trade in June/July/August could keep long bond yields under pressure over the summer. In other words, the trade war fog needs to dissipate for the 10yr US Treasury yield to unfold its upside potential to the range between 3.25%-3.50% (Major Forecast Update: USD to remain in the driving seat)

Chart 1: Less global trade, lower long bond yields

Last week we wrote that we found trade-based Chinese retaliation measures more likely than attempts to retaliate via the financial markets. The fact that Trump is threatening with new tariffs on goods worth a total of USD 450bn makes the retaliation process trickier for China. It is simply not possible to retaliate symmetrically, as there are not enough US exports into China to tax. This leaves an elevated risk of unorthodox retaliation measures being used. Prohibiting symbolic US products from entering Chinese territory could be one way of doing it. Expect more clarity on whether Xi Jinping will deliver an ALL-IN answer as early as this weekend.

…click on the above link to read the rest of the article…

China Cuts Reserve Ratio, Unlocks 700BN Yuan Amid Rising Trade War, Mass Defaults And Margin Calls

June 24, 2018

China Cuts Reserve Ratio, Unlocks 700BN Yuan Amid Rising Trade War, Mass Defaults And Margin Calls

As widely expected, China’s central bank announced it would cut the Required Reserve Ratio (RRR) for some banks by 0.5% effective July 5, just over two months after the PBOC did a similar cut on April 17, the first such easing since the start of 2016.

The move is expected to unlock 700 billion yuan ($108 billion) in liquidity amid growing trade war tensions, a sharp slowdown in the Chinese economy, a tumbling stock market, rising forced margin call, and a spike in corporate defaults.

According to the central bank, the aim of the cut is” to support small and micro enterprises, and to further promote the debt-to-equity swap program.” The cut will apply to major state-run commercial banks, joint-stock commercial lenders, postal banks, city commercial lenders, rural banks and foreign banks, in other words: virtually everyone.

“The size of the liquidity being unleashed has beat expectations and it’s larger than the previous two cuts this year”, said Citic fixed income research head Ming Ming. “It’s almost a universal cut as it covers almost all lenders.”

The RRR cut was also widely expected following the publication of a central bank working paper on Tuesday calling for such a cut.

A cut in China’s RRR by the PBOC is imminent following central bank’s working paper released Tuesday arguing for such a cut.

5:06 PM – Jun 20, 2018

According to Bloomberg, the cut is designed to achieve two things:

The 500 billion yuan unlocked for the nation’s five biggest state-run banks and 12 joint-stock commercial lenders will be channeled to debt-to-equity swaps, which can reduce companies’ debt burdens and help cleaning up banks’ balance sheets. It comes following no less than 20 corporate bond defaults in 2018, and ahead of a wave of corporate repayments that has prompted analysts to express fears about a default avalanche.

…click on the above link to read the rest of the article…

Weekly Commentary: The Great Fallacy

June 17, 2018

Weekly Commentary: The Great Fallacy

A big week in the world of monetary management: The Federal Reserve raised rates 25 bps, the ECB announced plans to wind down its historic QE program, and the Bank of Japan clung to its “powerful monetary easing” inflationist scheme. A tense People’s Bank of China left rate policy unchanged, too weary to follow the Fed’s path.

The renminbi declined a notable 0.5% versus the dollar this week. More dramatic, the euro was hammered 1.9% on Draghi’s game plan. Also on Thursday’s dollar strength – and even more dramatic – the Argentine peso sank another 6.2% (down 34% y-t-d). The session saw the Brazilian real drop 2.2%, the Hungarian forint 2.6%, the Czech koruna 2.2%, the Polish zloty 2.0%, the Bulgarian lev 1.9%, the Romanian leu 1.9% and the Turkish lira 1.7%.

The FOMC, raising rates and adjusting “dot plots” higher, was viewed more on the hawkish side. The ECB, while announcing plans to conclude asset purchases by the end of the year, was compelled to add dovish guidance on rate policy (“…expects the key ECB interest rate to remain at present levels at least through the summer of 2019…”). Blindsided, the market dumped the euro. The Fed and ECB now operate on disparate playbooks, each focused on respective domestic issues. Anyone these days focused on faltering emerging market Bubbles, global contagion and the rising risk of market illiquidity?

June 13 – Financial Times (Sam Fleming): “Jay Powell put his personal stamp on the Federal Reserve on Wednesday, as the new chairman vowed to speak in plain English and hold more regular press conferences as he fosters ‘a public conversation’ about what the US central bank is up to. The Fed’s statement after the Federal Open Market Committee meeting, which detailed its decision to raise rates 0.25% and set a course for two more increases this year, also bore his imprint, as Mr Powell stripped away some of the economic verbiage that cluttered its communications in recent years. Mr Powell’s break from the approach of his predecessor… was more a stylistic one than a radical change of monetary policy strategy.”
…click on the above link to read the rest of the article…

Russian Central Bank Buys Gold – 600,000 Ounces Or 18.7 Tons In January As Venezuela Launches ‘Petro Gold’

February 22, 2018

Russian Central Bank Buys Gold – 600,000 Ounces Or 18.7 Tons In January As Venezuela Launches ‘Petro Gold’

– Russian central bank buys gold – large 600,000 ounces or 18.7 tons of gold in January
– Russia increased its holdings to 1,857 tons, topping the People’s Bank of China’s ‘reported’ 1,843 tons
– Russia surpasses China as 6th largest holder of gold reserves – after U.S., Germany, IMF, Italy and France
– Turkish central bank added 205 tons “over 13 consecutive months” – Commerzbank
– Meanwhile, Russian ally Venezuela is launching a new gold-backed cryptocurrency next week

Russia has overtaken China as the fifth-biggest sovereign holder of gold, allowing it to diversify its foreign currency holdings amid a deepening rift with the US, Bloomberg News’ Eddie van der Walt reported overnight.

The Bank of Russia increased its holdings in January by almost 20 metric tons to 1,857 tons, topping the People’s Bank of China’s reported 1,843 tons. While Russia has increased its holdings every month since March 2015, China last reported buying gold in October 2016. The U.S. is still the largest owner of gold, with 8,134 tons, much of it stored in Fort Knox.

Russia’s central bank continues to add gold to reserves while the People’s Bank of China remains on hold, pointed out Commerzbank.

Analysts cited news that the Russian central bank bought 600,000 ounces, or 18.7 tons, of gold in January as it continued to diversify its reserves. Analysts cite IMF data showing that Turkey also bought large quantities of gold in January at 560,000 ounces or 17.4 tons.

“Thus the Turkish central bank has topped up its gold reserves by a total of 205 tonnes over 13 consecutive months,” Commerzbank added.

Kazakhstan continues to buy gold in small quantities, as it has been doing steadily for years.

This goes some way to plugging the gap left by the Chinese central bank. The PBOC, meanwhile, has not reported the purchase of gold for 15 months in a row.

…click on the above link to read the rest of the article…

One Bank Asks If The PBOC Is Secretly Goosing Markets

January 5, 2018

One Bank Asks If The PBOC Is Secretly Goosing Markets

Something odd is going on in China. On one hand, the PBOC has been soaking up excess liquidity from the market like a drunken sailor, and after not conducting reverse repos for 10 consecutive days, it has reduced the excess liquidity level by 510bn yuan in the latest week as existing open market operations matured, and roughly half that in the week prior.

On the surface, this would suggest a sharp tightening in monetary conditions, and yet precisely the opposite is taking place: over the past week, instead of rising short-term rates – the traditional indicator of tighter conditions in China – yields on Chinese short-dated instruments have tumbled. Putting the move in context, 1Y yields have plunged nearly 20bps in the first week of 2018, the biggest weekly slide since June 2015.

In parallel, on Thursday the 7-Day repurchase rate slid to the lowest since April.

While some have provided theoretical explanations, nobody really knows what is going on. In fact, some such as Citi have put on the tinfoil hat and speculate that the PBOC is covertly adding tons of liquidity on the short-end of the curve, to wit:

It looks like the PBoC has been adding quite a lot of liquidity in the shorter end of the curve in recent days -with a variety of interbank rates softer, and the 1y CGB yield notably lower by 21bps YTD whereas 5s and 10s yields have stayed broadly flat.

Assuming that Citi is correct, it would explain many things, not least of all the stunning surge higher in Chinese, global and even US stocks. This is how Citi puts it:

Against that background, it is no surprise that equity markets have been so well supported and the SHPROP has exploded upward.

…click on the above link to read the rest of the article…

Stranger Things

December 9, 2017

Stranger Things

The hidden agenda in the so-called tax reform bill is to act as stop-gap quantitative easing to plug the “liquidity” hole that is opening up as the Federal Reserve (America’s central bank) makes a few gestures to winding down its balance sheet and “normalizing” interest rates. Thus, the aim of the tax bill is to prop up capital markets, and the apprehension of this lately is what keeps stocks making daily record highs. Okay, sorry, a lot to unpack there.

Primer: quantitative easing (QE) is a the Federal Reserve’s weasel phrase for its practice of just creating “money” out of thin air, which it uses to buy US Treasury bonds (and other stuff). The Fed buys this stuff through intermediary Too Big To Fail banks which allows them to cream off a cut and, theoretically, pump the “money” into the economy. This “money” is the “liquidity.” As it happens, most of that money ends up in the capital markets. Stocks go up and up and bond yields stay ultra low with bond prices ultra high. What remains on the balance sheets are a shit-load of IOUs.

The third round of QE was officially halted in 2014 in the USA. However, the world’s other main central banks acted in rotation — passing the baton of QE, like in a relay race — so that when the US slacked off, Japan, Britain, the European Central Bank, and the Bank of China, took over money-printing duties. And because money flies easily around the world via digital banking, a lot of that foreign money ended up in “sure-thing” US capital markets (as well as their own ). Mega-tons of “money” were created out of thin air around the world since the near-collapse of the system in 2008.

…click on the above link to read the rest of the article…

Perpetual Notes – China’s New Way To Hide Debt (Call It Equity)

November 9, 2017

Perpetual Notes – China’s New Way To Hide Debt (Call It Equity)

The legacy of the soon-to-retire PBoC governor, Zhou Xiochuan, will be that in sharp contrast to his western brethren, he warned that China’s credit bubble would burst before the fact. Two weeks ago, Zhou warned during the Party Congress that China’s financial system could be heading for a “Minsky moment” due to high levels of corporate debt and rapidly rising household debt (see here).

“If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.”

Perhaps sensing that nobody in the Middle Kingdom was paying attention, we noted two days ago his lengthy essay published on the PBoC website. It contained another warning that latent risks are accumulating in the Chinese system, including some that are “hidden, complex, contagious and hazardous.” He also highlighted “debt finance disguised as equity” as a concern. Talking of which, there’s a new growth market in the gargantuan Chinese corporate debt market – we are referring to perpetual notes. Are you ready for the clever part about perpetual notes – they are debt but it’s permissible under Chinese accounting regulations to classify them as “equity” – et voila, corporate gearing has fallen. According to Bloomberg.

Under pressure to trim borrowings, China’s companies have found a way to reduce their lofty debt burdens — even if some of the risk remains. Sales of perpetual notes – long-dated securities that can be listed as equity rather than debt on balance sheets given that in theory they could never mature — have soared to a record this year as Beijing zeros in on leverage and the threat it poses to the financial system.

…click on the above link to read the rest of the article…

PBOC’s Zhou Warns Of “Sudden, Complex, Hidden, Contagious, Hazardous” Risks In Global Markets

November 5, 2017

PBOC’s Zhou Warns Of “Sudden, Complex, Hidden, Contagious, Hazardous” Risks In Global Markets

Just two weeks after warning of the potential for an imminent ‘Minsky Moment’, Chinese central bank governor Zhou Xiaochuan has penned a lengthy article on The PBOC’s website that warns ominously of latent risks accumulating, including some that are “hidden, complex, sudden, contagious and hazardous,” even as the overall health of the financial system appears good.

The imminence of China’s Minksy Moment is something we have discussed numerous times this year.

The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capital inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion.

And then at the latest Communist Party Congress meeting in Beijing, the governor of the PBoC (People’s Bank of China) said the following;

“If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.”

Yet, stock markets shrugged off his warning… while the Chinese yield curve has now been inverted for 10 straight days – the longest period of inversion ever…

Which appears to be why he wrote his most recent and most ominous warning yet… (as Bloomberg reports)

The nation should toughen regulation and let markets serve the real economy better, according to Zhou.

The government should also open up financial markets by relaxing capital controls and reducing restrictions on non-Chinese financial institutions that want to operate on the mainland, he wrote.

…click on the above link to read the rest of the article…

China’s Minsky Moment

October 26, 2017

CHINA’S MINSKY MOMENT

Sometimes you have to love the naivety of the markets. At this week’s Communist Party Congress meeting in Beijing, the governor of the PBoC (People’s Bank of China) said the following;

“If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.”

Yet instead of focusing on this dire warning, markets are busy trying to discount the chance of a Powell Fed or a Republican tax cut. Although both of these developments would be important, China is the tail that wags the dog. Full stop. Figure out China, and all the other financial market forecasts become that much easier.

Aren’t Central Bank warnings cheap?

Some might argue this “Minsky moment” warning is nothing more than a Central Bank whistling in the wind. Didn’t Greenspan caution about a similar concern with his “irrational exuberance” speech? And didn’t that end up being a complete non-event?

Yet I would argue that China is not the same as other countries. Although there are market elements to their economy, to a large degree, China is still a command economy. If Chinese leadership wants a particular outcome, they can just demand it, and it will happen.

So when the head of the PBoC warns about a “Minsky moment”, it’s probably not a good idea to load up on financial assets. For the longest time, China exported goods and imported developed nation debt and other financial assets. They had already started down the road of re-balancing their economy away from this export driven model, but this recent development confirms that the old playbook should be thrown out the window. The global financial system is changing, and China is leading the way.

…click on the above link to read the rest of the article…

The Sum of All Fears…..and a few related charts……

October 5, 2017

The Sum of All Fears…..and a few related charts……

Today, I’d like to take some time to revisit a couple of related topics that we first started discussing a few years ago. I am, of course, referring to the burgeoning increases in China’s Debt levels, Shadow Bank Assets (loans) and M2, along with a high-level analysis of the most recent PBOC Financial Stability Report and FSB Global Shadow Bank Monitoring Report. (No!….please don’t click this page closed….I promise this will eventually get interesting…)

As a starting point, let’s begin by reviewing the February, 2015 McKinsey report Debt and (not much) Deleveraging . I first referenced the report in this blog in March of 2015. The report focused on the world’s, and particularly China’s, rapidly building debt/leverage phenomenon (2014 Year End Data). I encourage you to re-read the entire report, but for those of you who are pressed for time, I’ll give you the executive summary bullet-points right here:

Debt continues to grow
Reducing government debt will require a wider range of solutions
Shadow banking has retreated, but non‑bank credit remains important
Households borrow more
China’s debt is rising rapidly

I’m hoping that the McKinsey authors will consider updating the report, bringing the figures current, as I believe these observations, figures and analysis are even more pertinent today than they were back in 2015.

China’s Debt

So now, using McKinsey as a reference point, let’s take a look at where we are today, via the FRED (St. Louis FED)data below.

The FRED (Federal Reserve Economic Data – Citations below) Chart below represents US Core Debt (as defined and provided by the BIS – Bureau of International Settlements) compared to China Core Debt, as a percentage of GDP. The third (bold Red) line represents China’s debt levels adjusted for a “what-if” constant I’ll explain shortly.

…click on the above link to read the rest of the article…

Kyle Bass: China’s $40 Trillion Banking System Has “Largest Imbalances I’ve Ever Seen”

September 17, 2017

Kyle Bass: China’s $40 Trillion Banking System Has “Largest Imbalances I’ve Ever Seen”

Kyle Bass’s Hayman Capital has been having a rough year thanks to its widely publicized bet against China’s currency, which has more than reversed its 2016 decline – its largest annual drop since 1994 – as the People’s Bank of China has cracked down on potentially destabilizing capital outflows.

However, Bass – unlike a handful of other former China bears who’ve been forced to scale back, or even reverse, their positions – has said that he is standing by his belief that China’s corporate sector is massively overleveraged, and overdue for a collapse that could destabilize the global economy. Chinese banks, according to Bass, have more than $40 trillion in assets held against $2 trillion in equity.

The dollar’s bull run against the yuan last year helped spark capital outflows as wealthy Chinese worried about the depreciation of their currency. In response, the PBOC tightened restrictions on foreign-exchange transactions for individuals, local companies – quashing a roaring international M&A boom – and even foreign companies, which in some cases have struggled to pull their money out of the world’s second-largest economy.

“So what’s going on right now? Let’s get the elephant out of the room. Let’s talk about China.

Kyle Bass: OK, how much time do we have?

RP: As long as you need. Where are we? What the hell’s going on?

KB: We’re in the such late stages of a game that is the largest global imbalance I’ve ever seen in my life.When you look at on balance sheet and off balance sheets, you look at on balance sheet in the banks, you look in the shadow banks. The number of total credit in the system, China is right at $40 trillion. Think about the number I just said. $40 trillion. And that’s using an exchange rate of call it 6.7 to the dollar, right? So it’s grown 1,000% in a decade. And we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.

…click on the above link to read the rest of the article…

The Three Headed Debt Monster That’s Going to Ravage the Economy

June 10, 2017

The Three Headed Debt Monster That’s Going to Ravage the Economy

Mass Infusions of New Credit

“The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.” – John Steinbeck, The Grapes of Wrath

Something strange and somewhat senseless happened this week. On Tuesday, the price of gold jumped over $13 per ounce. This, in itself, is nothing too remarkable. However, at precisely the same time gold was jumping, the yield on the 10-Year Treasury note was slip sliding down to 2.15 percent.

In short, investors were simultaneously anticipating inflation and deflation. Naturally, this is a gross oversimplification. But it does make the point that something peculiar is going on with these markets.

Clear thinking and simple logic won’t make heads or tails of things. For example, late Wednesday and then into Thursday the reverse happened. Gold gave back practically all $13 per ounce it had gained on Tuesday, while the yield on the 10-Year Treasury note climbed back up to 2.19 percent. What to make of it?

Gold and treasury yields have been inversely correlated for some time. This is probably due to inflation expectations driving expectations about interest rate policy – click to enlarge.

With a little imagination one can conceive of where the money’s coming from to buy Treasury bonds. More than likely, it has something to do with central bank intervention into credit markets. Though, the Federal Reserve is not the only culprit.

If you recall, the Federal Reserve’s quantitative easing program concluded in late 2014. The Fed even says it plans to start shrinking its balance sheet later this year. So if the Fed’s not the source of liquidity for Treasury purchases, who is?

…click on the above link to read the rest of the article…

PBoC Spins China’s Bad-Loan Data

May 1, 2017

PBoC Spins China’s Bad-Loan Data

In a recent speech at Bloomberg’s headquarters in New York, People’s Bank of China Deputy Governor Yi Gang reassured his audience on the level of non-performing loans (NPLs) in the Chinese banking sector. It had, he said, “pretty much stabilized after a long period of climbing. That’s a good development in the financial market.”

Yi was referring to NPLs as a share of total loans, which, as shown in the figure above, have stabilized over the past year. But this is misleading. NPLs have actually continued to grow—by RMB 238 billion ($35 billion) in 2016, reaching a total of RMB 1.5 trillion ($220 billion). The reason the NPL ratio has stabilized is that Chinese banks have extended more loans, boosting the denominator—not because they have reduced their exposure to bad loans.

In short, Yi is spinning. China’s bad-debt problem remains serious.

China Losing Control? PBOC Imposes New Yuan Outflow Limits For First Time In Two Decades

December 1, 2016

China Losing Control? PBOC Imposes New Yuan Outflow Limits For First Time In Two Decades

Late last week, we reported that in its latest push to limit and/or halt capital outflows, China unveiled new capital controls meant to stem further capital flight disguised as outbound M&A by clamping down with tighter controls on Chinese companies seeking to invest overseas, intensifying efforts to slow a surge in capital fleeing offshore amid tepid growth and an uncertain economic outlook. Beijing was said to focus on “extra-large” foreign acquisitions valued at $10 billion or more per deal, property investments by state-owned firms above $1 billion and investments of $1 billion or more by any Chinese company in an overseas entity unrelated to the investor’s core business. The new controls would apply to deals yet to receive approval from China’s top economic planning agency.

It did not end there.

ADVERTISING

One month after we noted a Bloomberg report that China was preparing to impose curbs on Bitcoin – which has in the recent past become a widely accepted mechanism to bypass capital controls – including policies restricting domestic bitcoin exchanges from moving the cryptocurrency to platforms outside the nation and imposing quotas on the amount of bitcoins that can be sent abroad, overnight we learned that China was taking a page out of the Indian demonetization playbook, and was curbing gold imports in another attempt to clamp down on capital leaving the country.

As the FT reported, some banks with licences have recently had difficulty obtaining approval to import gold, they said — a move tied to China’s attempts to stop a weakening renminbi by tightening outflows of dollars, the banks added.

To summarize, in just the past month, China has unveiled at least three distinct sets of “controls” aimed at curbing capital flight out of China, at a time when as Goldman calculated recently, the true extent of capital outflows if far greater than what is reported by the central bank.

…click on the above link to read the rest of the article…

The New Middle Kingdom Of Concrete And The Red Depression Ahead

April 12, 2016

The New Middle Kingdom Of Concrete And The Red Depression Ahead

No wonder the Red Ponzi consumed more cement during three years (2011-2013) than did the US during the entire twentieth century. Enabled by an endless $30 trillion flow of credit from its state controlled banking apparatus and its shadow banking affiliates, China went berserk building factories, warehouses, ports, office towers, malls, apartments, roads, airports, train stations, high speed railways, stadiums, monumental public buildings and much more.

If you want an analogy, 6.6 gigatons of cement is 14.5 trillion pounds. The Hoover dam used about 1.8 billion pounds of cement. So in 3 years China consumed enough cement to build the Hoover dam 8,000 times over—-160 of them for every state in the union!

Having spent the last ten days in China, I can well and truly say that the Middle Kingdom is back. But its leitmotif is the very opposite to the splendor of the Forbidden City.The Middle Kingdom has been reborn in towers of preformed concrete. They rise in their tens of thousands in every direction on the horizon. They are connected with ribbons of highways which are scalloped and molded to wind through the endless forest of concrete verticals. Some of them are occupied. Alot, not.

The “before” and “after” contrast of Shanghai’s famous Pudong waterfront is illustrative of the illusion.

The first picture below is from about 1990 at a time before Mr. Deng discovered the printing press in the basement of the People’s Bank of China and proclaimed that it is glorious to be rich; and that if you were 18 and still in full possession of your digital dexterity and visual acuity it was even more glorious to work 12 hours per day 6 days per week in an export factory for 35 cents per hour.

…click on the above link to read the rest of the article…

Tag Archives: people’s bank of china

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Chart 1: Less global trade, lower long bond yields

Aren’t Central Bank warnings cheap?

Post navigation

Latest Posts