China 1 Month Interbank Rate At Multi Year Highs, More Than Doubles In One Month

Tyler Durden's picture

With everyone focused on the dead and buried Spanish interbank market (no, no STD is the healthiest bank in the world, for realz) is the real liquidity threat elsewhere... about half a world away to be precise? As the chart below shows, since June, the Chinese 1 Month Repo Rate has exploded and is not looking back.After trading in the 1.5% area for years, in the past 3 weeks, this has nearly tripled, and today traded at a 52-week (and close to all time) high of 3.8%. While for many Chinese banks, flush to the gills with money due to a tapering in consumer lending, this is not an issue, we are fairly confident there are various banks that will be impaired by this spike. And it certainly did not occur in a vacuum - there a distinct, and extremely levered, correlation between the CNY fixing and the 30 Day Repo. Should China go ahead and reval the renminbi, must we expect a complete lock up of the Chinese lending market? Perhaps with the Shanghai Composite hitting a fresh 52 week low today, at least someone is paying attention.

And correlating the RP1M and the CNY (ignore the wobble at the end: today's fixing was 6.833)

And lastly, the Shanghai composite in all its correction splendor - bet you haven't seen this much on bubblevision lately?

Here are some thoughts on this troubling development from BofA's TJ Bond and Ting Lu:

Short-term interbank rates climbed again in the week, despite the RMB166bn net money injection by the PBoC into the market. The seven-day repo rate rose 51bp, to 2.733% on 11 June. The one-year PBoC bill yield rose 8bp, to 2.0929% and threemonth PBoC bill yield was up 4bp, to 1.5704%. We think the renminbi market could be quite tight at present and volatilities in money rates could be expected ahead of the giant IPO of the Agriculture Bank of China in July. In addition, some people could be converting the renminbi into the dollar, as the market pushed back the expected timing of the renminbi appreciation. We reiterate our view that the rising PBoC bill rates are not signals for an imminent policy rate hike by the PBoC. We continue to expect the first rate hike in 4Q10.

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tmosley's picture

Sort of odd thinking here.  The interbank rate goes up in order to counter inflation, but that is somehow going to impair the economy of the nation with the highest savings rate in the world?  

Maybe I'm not seeing something properly here?  It seems to me like raising rates is a sign of strength, and not a sign of impending doom.  Unless you are a Keynesian, of course, in which case you would be shouting off the rooftops saying China is about to collapse, when they are in fact the world's strongest economy.

Edmon Plume's picture

By raising rates, it will discourage overinvestment in an already overheated housing market.

thesapein's picture

Sweet, first two post foretold what I was gonna say.

It's exactly what they said they were going to do and it still looks like a good call.

jeff montanye's picture

the combo of higher short rates, declining equity market, global deflationary depression, uniquely high foreign reserves (like u.s. 1929, japan 1989) doesn't seem to bode well, even for the long-term investor (remember the motto).  also predicting which contracts survive a regime change is always tricky.

Cheeky Bastard's picture

Word is PBoC is conducting stealth bond buybacks. Dont have any sources or links; its all hearsay; and will likely stay that way whether there is any truth to that assertion or not.

HarryWanger's picture

Been sorta wondering why no one has been "noticing" the Shanghai Index. Seems like if I were betting on our market to go up, this would cause some concern. But rarely is it mentioned...outside of ZH of course.

The Rogue Trader's picture

Reading this as a shortage of US Dollars in the system as the Yuan is locked to the USD...

doublethink's picture




Mainland firms look offshore for US dollar loans

6:20pm Small and mid-cap mainland companies are going offshore to meet their US dollar needs, using guarantees from mainland banks despite the increased costs the deals incur.


Whizbang's picture

Yes, it was very fashionable to short the dollar back when it was at 74. Now that it's at 86, and everyone and their brother is short the dollar, things are a little scarier. This is what almost blew up the world in 2008. Not sub prime like everyone thinks, it was the worlds largest short squeeze. It's about to happen a second time, unless bernanke gets his f*cking helicopter ready again.

The Rogue Trader's picture

Thus the recent upswing in the Euro is just built on "air" blown by the Giant Squid blowing shorts out before the next leg down....

Edmon Plume's picture

If your'e going to blow your shorts out, keep your leg up.

greg merrill's picture

He's been upgraded to B-52 Ben. Didn't you get the memo?

Whizbang's picture

I suppose thats still better than the ICBMs of liquidity to come after this next drop.

mikeksa's picture

when will the yuan be devalued by 50%+

tmosley's picture

They're gonna need a bigger printing press.

cainhoy's picture

when it hits the fan, the time to leave the room will have passed.

cainhoy's picture

yes, the world's strongest economy! dependent upon the continued consumption by the American sheeple of shoddy plastic kitchen gadgets,fake handbags and toxic wall board. it's over and the sheeple have rolled over with empty pockets. hooray for hollywood!

Edmon Plume's picture

I need another garden gnome.  Be back in a jiff.

tmosley's picture

Yeah, they are dependent on us the way your local grocery store is dependent on people who write bad checks.

HINT: Paper only has value if you can trade it for something useful.  We don't make enough useful things to justify that much paper.  Thus, when they finally decide to spend their paper, prices in terms of dollars will go to the moon.

thesapein's picture

excellent analogy.

can I use that? credit to?

Solarman's picture

Actually, there are many things we make that the Chinese would desparately import, then steal the technology and processes and put the rest out of business.  We have them locked down in export controls.


People may not realize this, but we are still the world's largest manufacturer.  It just doesn't feel like it because we are quickly eroding it.


China is screwed, just like how we screwed Japan in the 80's.  We use their obsession with exports and currency control against them, and to think they taught us judo and we are using it on them.

tmosley's picture

Japan screwed itself with enormous spending programs that were (and are) encouraged by Keynesian theory.  China, on the other hand, has a surprisingly low rate of spending.  Chinese government spending only accounts for 20% of their GDP.  Unless this changes, China will continue to advance.

jeff montanye's picture

what was u.s. govt spending in 1929 as a share of gdp?

DosZap's picture


Appears the LME & COMEX got caught, and outed..........

The SWHTF over this IMHO............what we THOUGHT all along, is now OUT for ETF consumption.......

Say what?.............NO Physical Gold?.

37FullHedge's picture

I am bullish on China and I have just this week dipped my toes in, If China tanks I will buy more and more, I think the PE is around 13 or so thats very cheap for GDP growth of 10%

I have read many things regarding the problems with Chinas housing boom and wage inflation etc, I see the wage inflation as a good development for China as the higher wages provides the workers with funds to spend and take up slack as the OECD countries stagnate, good for some stocks, The housing bubble is a problem so maybe this is the cause of this spike as banks worry about rate hikes to curb inflation etc, China makes  profit and has a few trn spare cash to bail out banks if things get iffy, I am in for the long haul, decades so any blow up I see as buying opps. Forecasting is a mugs game but I think in 10 years the yuan will have gone up a lot and the stockmarket too.

dan22's picture

“My hometown is zhejiang, now I live in shanghai, my sister pledged her home to bank, she lived in hangzhou, she bought her home around 500,0000rmb five years ago, now her home worth 2million rmb, so she can get huge loan from bank, she gave this loan to a shark loan company with 30% return every year, she has been doing and living on this for 4 years, she is a middle school teacher, she earned 4000rmb per month, but with this lending arrangement, she has been able to buy a car, the interest income is 6 times of her salary, One of my cousin's father lost all his principle of 4 million since one scheme blow up in 2008. That is my personal experience. 2 months ago I went back to my hometown in new year, this is 3 tier city, but many so investment companies shop in the street, and in 2009, I saw the so called investment companies( shark loan) opened in the town level, I visited four small towns, I saw there is shark loan shop in every town. China media is controlled, so you can’t find many negative exposure, but if you dig a little bit deep, by doing some search for shark loan in Chinese, you will find out how serious the problem is. In my home town a 150 million ponzi scheme blow up in 2008, the leader turned himself in after he paid all the local official leader in full, and he felt safe enough knowing he will be protected, but my cousin's father was not so lucky for his 4 million, since he do not get his money back. Some people compare this bubble to Japan, to be fair, what happened in China real estate, the madness, the greedy, the loan shark with 100 % interest rate, it is much, much worse. “


Special Report- The Secret Engine Behind China’s Housing Bubble- The Ponzi Shark Loan Finance


tmosley's picture

Thank you.  More information from on the ground is helpful.  If the rise in housing prices is being driven by such lending practices, then it is indeed a bubble.  However, it seems likely to me that the government will just let the shark loan institutions fail rather than bailing them out.  That means the pain in China after the pop will last for a year at the most.

If China decides to take the bailout route, however...

Solarman's picture

Sorry for your dad, smart sister. I hope she is peeling some of that profit back in case it blows up on her.

jeff montanye's picture

thank you for your perspective.

jdrose1985's picture

China is a little ponzi scheme built on a larger ponzi and you guys just kill me thinking things are going to be a bed of roses in a years time. Glad its not my money you are managing.

Rising rates mean harder to secure funding, wht happens to ponzis when you run out of cheap input? Ponzi consumes itself, wow, I think I deserve a Nobel prize ;)

$20 barrel oil will not equate to cheap oil. Its just the exponential function dictating things once again and China is even more fucked than we.

Grand Supercycle's picture


EURO bullish signals I warned of during the past few weeks - has resulted in the recent rally and the daily chart remains bullish.

The DOW/SP500 counter trend rally suggested on June 13 continues, however ...

doolittlegeorge's picture

ahh to be a Chinese farmer.  In Upstate New York they commit suicide as well.  Who cares about the price of milk so long as the dead bodies keep coming, right?  Or is it the other way around.  Of course in China they have a far larger supply of farmers.  I would not short China nor its real estate market.  when this "creation" of "living in the clowds" runs its course, however, these folks might pine "for the country living."  stay long US agricultural.  There is no substitute even though there is competition.  In short Brazil and Europe "can't get out of their own way."