Chinese 1- And 2-Week SHIBOR Rates Surge Over 9%, Highest Since 2007

Tyler Durden's picture

And while the developed world wonders whether or not Greece will default (it will), the real news continues to come from the new "White Knight" and IMF replacement, China, which according to the China Securities Journal is about to see an unprecedented surge in inflation, making life for the schizophrenic PBoC (on one hand handing out liquidity, on the other reeling it back in with rate hikes), untenable. Market News reports: "The Chinese central bank will need to raise interest rates in the near future if it is to tackle inflation pressure, despite the potential hit to economic growth, the official China Securities Journal said in an unsigned, front-page editorial Thursday. The newspaper said the central bank will move in the near future because the monetary conditions that are driving inflation are still in place, while negative rates are driving money out of the banking system, and putting those funds outside of the scope of reserve requirement adjustments. "The China Securities Journal believes that the current monetary conditions driving inflation haven't been reversed (and) the central bank will raise interest rates to address this," it said. Consumer inflation in June is very likely to exceed 6% y/y following May's 5.5% rise, the newspaper warned." Just as importantly, "real interest rates [have been pushed] into negative territory and
triggered a drain of funds from the traditional banking system in search
of yield. The newspaper said that M1 and M2 are no longer reliable indicators
of fund flows within the economy because of this drain and said "it is
urgent that interest rates are raised to reverse negative rates and
guide funds to return to the banking system." Which simply said means that the liquidity crisis we have been following every day for the past week is about to get far worse. Indeed, as of tonight, both 1 and 2 week SHIBORs are above 9%. The highest 1 week Shibor has ever been is just over 10% back in 2007, right after the quant crash in August of that year. We are confident this all time high will be taken out in a few days.

1 Week:

2 Week:

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Goldenhands57's picture

http://www.youtube.com/watch?v=Imb4tYOk8GE

The New/Old National Anthem of the PRC?

This ought to get interesting, in South China especially.

 

Element's picture

The old "Iron Rice Bowl" ain't what it used to be ...

jeff montanye's picture

been replaced by a 401 special k

qussl3's picture

Decoupling anyone?

chump666's picture

And China posturing re: Europe, pathetic.  That country is heading for a major crash landing...

 

jeff montanye's picture

again, the previous two instances where one country had as much foreign reserves vs. world reserves: u.s. 1929, japan 1989.

Treason Season's picture

Bit of a layman here Jeff. Could you explain the

correlation? Seems counterintuitive,

the winner loses.  TIA

SMG's picture

Excessive debt/fiat fueled growth, then pull the plug.  The Oligarchy/Bankster/Illuminati have been using this as one of their strategies to increase their power and achieve their goals for the last couple hundred years.  Japan was a big collapse as was the us in 29, but this next one will be the largest in human history.   China's pride is great right now and the collapse will be so bad there, that they will see war as their only way out.  

Which is great from an oligarch's perspective.  They gain power and wealth from the war business and kill off possibly billions of useless eaters. 

I hope somebody can stop it this time.  Maybe if the truth gets out before it's too late.

uwsucks's picture

HSBC: China June PMI at 50.1 Lowest in 11 mths. Signaling a decline in demand and effect of tightening 

http://bit.ly/m6CuYP

Popo's picture

 

True.  But the one thing that makes a good trade is knowing when to sell. 

Yes indeed it's "Mmmm gold" but keep in mind: It won't be a good trade for much longer... because when the PBOC liquidity drain begins in earnest (and begin it must), it's going to be "Mmm fiat"  no matter how repugnant or counterintuitive that may seem.

At which point the fiat countercycle will likely run longer than most are willing to believe or admit.  

 

 

zhandax's picture

Perhaps some but perhaps not as bad as you think.  The average Chinese citizen with investable assets (how is that for an oxymoron?)  may be able to see through the ponzi better than you think.  Question is where can I get some shibor-based CD rates for the short term?  I will guess that is the question they are asking when deciding whether gold or fiat for this storm.

jeff montanye's picture

didn't work that way in the early 1930's and they grew the money supply a lot slower then. and that's measured in dollars then (the strong currency like the chinese one now). http://www.oilngold.com/analysis/research/gold-a-gold-stocks-during-peri...

ElvisDog's picture

Yeah, rock and a hard place. If they don't raise rates, the liquidity crunch and inflation get worse. If they do raise rates high enough to stop inflation, their growth rate plummets and unemployment rises. Good luck with that.

Oh regional Indian's picture

Well, it looks like the truth is getting about ready to blow. Either the truth or something a whole lot uglier.

Add major flooding in China to these fiscal woes. Overall, the system looks really shaky right now.

ORI

http://aadivaahan.wordpress.com/2011/06/21/thunder-perfect-mind/

 

OC Money Man's picture

Have any of you considered the potential shock and awe of a Chinese banking crisis?  They have $5 trillion in cash flow loans to cronys = equivalent to pay day lending.  I wrote this 2 months ago, but the numbers are just worse now.

CHINA IS ABOUT TO SUFFER THE MOTHER OF ALL BANKING CRISIS

It is ironic that as China is demanding greater control of the World Bank and International Monetary Fund, just as the nation’s banking system is about to be devastated by the white hot flames of inflation. 

From a distance, China’s economy seems to be the poster child of sustainable growth.  Recent government reports show the economy expanding by 9.7%, retail sales up a blistering 17.4%, foreign reserves at $3 trillion, and inflation only 5.4%.  But these statistics mask a dark side, Chinese communist authorities have been artificially holding down fierce inflationary pressures by subsidizing consumer prices.  Over the last six months the government artificially restricted increases in retail food prices to 11%, while wholesale commodity food prices have jumped by 35%.  In the last two months the government capped retail gasoline price increases at 10%, even as Middle East turmoil caused crude oil prices to leap by over 30%.     

Most Americans believe that the secret-weapon of the “China Economic Miracle” has been currency manipulation of Chinese yuan’s exchange rate with the U.S. dollar.  In the past two years as Asian economies and foreign exchange reserves expanded dramatically, the yuan gained only 4.6% versus the dollar.  This modest rise compares currency gains of 31% for the Indonesian rupiah, 22% for the South Korean won, and 21%for the Singapore dollar.  China has subsidized its exporters by recycling its export earnings back into over-valued U.S. dollars.  The strategy makes China’s exports more competitive, but at the cost of spiking inflation at home.    

The less known and far more important secret-weapon of the “China Economic Miracle” is the absolute control of the banking industry by China’s four largest state-owned banks (“SOB”); Industrial and Commercial Bank, Agricultural Bank, People’s Bank of China and Construction.  Since the government does not provide adequate social welfare programs and restricts its citizen’s investment options to bank accounts, about 40% of Chinese household income is deposited in SOBs each month.  The SOBs then leverage the deposits by ten times and loan 75% of this massive amount of cash at extremely low interest rates to state-owned enterprises (“SOE”).  The other 25% of lending is allocated to real estate development.

China is no stranger to bankers making risky loans to communist party officials and their crony real estate developers.  During the Asian Financial Crisis of the mid-1990s, it is estimated that 40% of all SOB loans were non-performing and most were written off.  The Chinese paid for the SOB losses with a 76% devaluation of their currency that crushed the people’s buying-power by 76%.  From 1997 to 2004 Chinese frivolous lending was somewhat restrained, but since 2003 the bureaucrats have mandated a massive expansion of lending.  In comparison to the U.S. and Europe where bank lending is flat, SOBs have been expanding loans by 25% annually.

With inflation fears rising and bank leverage at an all-time high, the Chinese authorities just began to raise interest rates and instruct SOBs to slow the growth of lending to avoid another banking crisis.  Outsiders have no idea what percent of SOB loans to SOEs over the last seven years are already non-performing, but the China Economic Miracle for real estate is quickly turning into a horrendous nightmare.  Quoting from CNN Market News "Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission."  The cumulative plunge in real estate prices in China’s capital this year is 34% and similar losses are being reported in fast growing Hangzhou near Shanghai. 

The Chinese officials like to present an image of their population as very industrious, but also stoic and reserved.  But with the real estate bubble bursting, banks stuffed with non-performing loans, interest rates rising and inflation raging, the flames of social protest may soon ignite.  Fitch Ratings just lowered China’s AA- sovereign credit rating to “negative” from “stable”; citing a “high likelihood of a significant deterioration” in banks’ asset quality within three years.  Credit rating agencies also like to present a stoic and reserved image; but this eloquent language is actually code words for “duck and cover”. 

China may have achieved the fastest economic growth in world history, but that growth has been powered by currency manipulation and an exponential growth of risky bank lending.  The Chinese authorities have been shielding their citizens from the inflationary effect of their strategies through subsidies paid for with more bank lending.  Now that inflation is out of control and the Chinese government to trying to shrink lending; the mother of all banking crisis is looming! 

 

Element's picture

That's a good summary of why I scoff when the MSM claim China has the World's second largest ekonome and budding king currency. Nope, they just 'grew' the most misallocated bad debts and labelled the result 'GDP growth' - about to come unzippered.

Urban Redneck's picture

The Chinese are just trying to catch up to the US- which has them beat in NPL's both on the banks' ledgers and the Fed's.  US GDP growth is just as BS, unless you believe the crap the MSM parrots about the US recession ending in 2009, non-existent/transitory inflation, and adequately capitalized US banks. 

Reven's picture

Fascinating analysis.  I hope you don't mind if I repost this elsewhere.

 

I have believed for some time now that hyperinflation may happen in China.  Now, I am more convinced.

walcott's picture

1.5 billion population China? 

Plastic Rice.

 

Popo's picture

I must partially disagree with this statement:  "China may have achieved the fastest economic growth in world history, but that growth has been powered by currency manipulation and an exponential growth of risky bank lending."

 

Yes and no.   Yes, you're correct there has certainly been an explosion in lending/debt.   But unlike the European periphery and the United States -- the story does not begin and end with risky debt.   You seem to be missing the minor detail of China underselling global manufacturing and building the largest manufacturing capacity in the world.    And you also seem to be missing the minor detail of China's liquidity in the form of US backed assets. 

Both of those things combined leave China with a better forward potential and an ability to withstand downturns than you indicate in your post.

Is China overheating?  Yes. Absolutely.  They're heading for turbulence.  Will it be the "Mother of All Banking Crises"?   I'd have to say no,  that honor will be reserved for Europe.

 

 

 

Professordoomfinger's picture

Coyotes are Howling tonight in Michigan - Do the Chinese eat them too?  Yum.

 

S-hai High's picture

"Just as importantly, "real interest rates [have been pushed] into negative territory and triggered a drain of funds from the traditional banking system in search of yield."

They make it sound like this is something new! If the 1 year deposit is 3.25% and 1 year inflation is 5.5% (although, anecdotely i hear  its closer to 7 or 8%) then there is zero incentive to save.

As mentioned above - they would need to move the deposit rate by 200bps to make people think twice and saving... which would kill growth

I think the best option would be to raise the deposit rate, while maintaining the lending rate. Sure, the banks won't be happy to see their margins compressed, but c'est la vie!

qussl3's picture

Therein lies the problem.

China's miracle is driven by credit fuelled fixed asset investment.

Cut out access to credit, everything grinds to a halt.

There can be no sustainable organic consumption growth when the wealth and income distribution is this skewed.

Like it or not either the rich suffer some kind of redistribution or they have to open the credit spigots to kick the can a little further.

Fucked either way just a matter of when.

Juice Box's picture

Good thing the Central Committee has a 10 Year Plan!  I sure they saw this one coming ten years ago. 

 

glenlloyd's picture

higher and higher she goes, where it stops nobody knows!

PulauHantu29's picture

About Those 65 Million Vacant Homes In China...

By Gus Lubin

http://www.businessinsider.com/chinese-g...

China is finally buying fewer US Treasuries, StanChart says

http://ftalphaville.ft.com/blog/2011/06/...

S-hai High's picture

Also - with the half-year reports coming out soon, the chinese banks need to bolster their  loan-2-deposit ratio to meet preliminary targets (in line with the 75% end of year target set by the PBoC).. hence why they're not at all keen to issue further loans over the coming 7 days til July 1st. As such - Shibor will remain abnormally elevated until the end of the month

 

janus's picture

I asked this question on an earlier post about China, but it seems the comments had played out by the time I'd conjured the conundrum.  Nevertheless, I'm reasking it by pasting it below.  Thanks in advance.

I don't know nearly enough about international finance, so could someone confirm or dispel my thoughts on this:

It looks to me as if the entire world is exporting inflation to China (including most of the BRIC nations), and since the US is both agressively destroying the dollar and defending our right to do so, isn't China (because of the Yuan's relationship with the dollar) going to be forced into a sort of nuclear corner -- where they must either totally abandon the interests of their people or sabotage the economic super-structure?

qussl3's picture

Have you been to China?

Take a walk around the industrial backwaters or the 2nd and 3rd tier cities and the answer is clear.

Also, China exports deflation to the ROW, if they revalue prepare for a period of pretty insane inflation, fortunately it'll largely be confined in non-essentials.

janus's picture

Well, as enticing as a stroll through dystopian megalopolises may be, I don't think I'll be amending by 'bucket list' in the near term.  I do, however, know curious souls who've done just that; in addition I've read gripping narratives of those who wanted to wallow around the bowels of the beast.  Their conclusions were of a kind.

Okay, so I'm game: I'm strollin through this miasma of despair and plague, with natives spitting everywhere, nearly assaulting my new searsucker with sputum at every turn; and I'm lookin...still lookin...nothing -- I'm not pickin up what you're laying down, qssl3 (if that's even your real name).  If I'm hunting a metaphor, the trail is cold.

Are they hemmed in, and are the consequences of this either/or-existential thing as dire as they seem to be?

qussl3's picture

China blows up on a daily basis, its just that we dont hear about it.

Riots are everywhere, yet the state pervails.

I would not bet for a spectacular soviet style collapse.

As long as they can keep the masses occupied and fed, this charade can go on for a really long time.

I bet it gets more expensive for everybody but no one blows up.

agrotera's picture

Good morning Janus,

 

I think you're right...the US exports inflation particularly with the money printing and the low labor costs of China have been sending back deflation.

I disagree that China has only two choice--they are too resourceful for that.  For years now, they have been cutting back to give up their purchases of US Debt and in place they have been buying real assets and stockpiling in order to store and preserve wealth...you can look at gold reserves even from 2000 forward and watch how their central reserves increased as our official reserves shrunk.

So, the economic super-structure you are referring to is in flux--the whole world is talking about the world moving away from the dollar, while one doesn't hear much about it in the US.

I remember when the new pres. BO got elected.  For a few weeks it wasn't clear what he would or wouldn't do--would he honestly want a better way, or would he be a puppet to the real powers that run the country--several weeks into his presidency, he finally got with tiny tim g. and announced that we should all let bygones be bygones, adn we should not look back and that he fully backed the paulson/bernake plan...that same week the UN announced that it would recommend that the world move away from the USdollar as reserve currency and China gave a stern warning that they hoped that the US would mind their large investment with fiscal responsibility...the US is not following the interest of the US with the money printing and bank bailouts, it is following the interests of the owners of the privately held Federal Reserve and it's agents the TBTF banks.

When the elected officials of the United States let the TARP pass and gave the endless OK to the privately held Federal Reserve corp  to print and print and blow smoke all around, the US became a (so sadly and unbelievably) like any other banana republic...

but the vote may save the Republic if a truly righteous person can step in, tell the truth and clean up the mess...

(sorry i got off  topic)

janus's picture

Good morning, dearest.

For me it will have to be my final goodnight; for I'm told I live in 'Central' time (central to what, they've failed to tell), and accordingly the woodland denizens outside are not yet hinting at morning.  I don't sleep much, plenty of time for that in the grave; but it needs attending to all the same.  In any event, have a cup of the strongest thing you drink (I mean caffine-wise) with an extra-helping of frothy cream for me.

Thank you for your thoughtful answer.  You seem to infer that it is America who's so helplessly wedged between two menaces.  Like she's set two juggernaughts of titanic heft (Titans, in other words) against herself, and gauging which one will smother her first is the focus of her no-win/kick-the-can-as-long-as-you-can game. 

The more I mull this sticky-wicket (the Event Horizon we seem to have breeched), the more I invariably conclude that it's armageddon.  I don't mean to imply Rapture or any such thing; only, I'm grasping at the only metaphor that could possibly serve.  Which is to say, the enormity of this horror is inestimable.  But if we were to really apply the old noodle and reckon this thing in a fully-orbed manner, it seems that the dominos have already started plinking -- the die is cast and the rubicon is in the rear-view, so to speak.  For if everyone's options are so narrow, and the best the world has to show for its Mephistophalian efforts is China, a hulking, callow mass of malinvestment, mega-leveraging and macro-economic-mischief if there ever was such a thing, well, it stands to solid reasoning that bleak is a very tepid way of describing our most inevitable future -- in the short term.

Perhaps the world needs Napoleon.

Vive Le Revolution,

Janus

 

agrotera's picture

Sweet dreams Janus.

 

PS  I think Andrew Jackson could unwind the mess in the best possible way achieving the best possible outcome!!!

Printfaster's picture

And the world ended in 2007?  Did I miss it?

Where am I now?

Talk about the world's largest non event.  Shibor?  Isn't that a Japanese hot towel?

chump666's picture

China loves cars. Net importer of oil + credit tightening + over leverage + over capacity = major slowdown.

Rio Tinto just cut Iron ore prices, most iron ore exporters will start to do the same, so metal prices are going down.

 

qussl3's picture

Somewhere in Oz, the Stevens witch is about to take bath.

uranian's picture

and t bill rates are back to zero. it would appear that things are about to get interesting again pretty soon.

Franken_Stein's picture

 

Should you be interested in the Mumbai Interbank Offered Rate (MIBOR),

it is published by the National Stock Exchange of India (NSEI) in Mumbai.

 

As Excel (.xls)-Sheet:

http://www.nseindia.com/content/debt/debt_statistics.htm

 

or here in chart form:

http://www.kshitij.com/graphgallery/mibor.shtml#mibor

 

AUD's picture

Any idea what the PBoC's 'target' rate is?

 

chinaguy's picture

SHIBOR also front page news in the FT - inflation in China "6% y-o-y" LMAO

Yen Cross's picture

 Not to be rotten or mean! Did anyone get ass-slapped on the GBP trade yesterday. I Drew this trendline on the h4 chart that ran through the gbp/jpy 128.5 level just before that 3 time loser @ 130.23537! It was a small, however I'm pissed! Then usd has the audacity to cross the resistance on usd/jpy just below 80.40!?

    Thank GOD they were smalls! Tyler any thoughts on Month end Flows! That euro/pound repatriation thing?

topcallingtroll's picture

The usd is still just sticking its toe in the water of devaluation. I still think eventually it will jump right on in.

However you are smarter than me and realize to trade one must think small and local as you said before, rather than macro.

Most of us on ZH still take comfort in long term macro calls, the playpen of the unsophisticated. By my answer above i am just as guilty!

Yen Cross's picture

Element is spot on! nice work ~~`1