Over the past few months many have wondered how it is possible that with the great amount of tightening current undertaken by the PBoC has China not seen any decline in its inflationary pressures over the past 6 months. Finally, courtesy of Sean Corrigan who first identified the so called reverse Cash-n-carry trade in China over two years ago, we have our answer on the "next Chinese investment craze" - money lending. In a nutshell, as the Economic Observer points out, the Chinese central bank has now outsourced nearly a fifth of all its capital lending to private sources. And as Corrigan explains: "…so, I guess what is happening here specifically is that Chinese cos buy metal abroad on USD credit (cheap, depreciating) - - possibly for extended term, then sell/buy the metal domestically for Yuan on the spot/futures market (reverse cash-n-carry), then lend out the Yuan on the curb market at double digit rates to bank loan-deprived customers in an appreciating currency into the bargain - - - - - ‘implied demand’, my foot!" Just as importantly, with everyone lending, the proceeds continue to funnel into precious metals now that the local stock and real estate market bubbles have popped. The only question is how long will this recycled source of capital last?
Despite ample liquidity in the market, funds have been retreating from
some of the areas where money had previously flowed, stocks are not
pushing new highs, property is being hit by government policy to rein in
soaring prices, recent falls in the price of vegetables have led to
speculation in agricultural products to drop off and the outlook for the
art market is no longer clear, in the face of all this, where is all
that money going?
~ It seems that many companies are turning to the
business of "making money out of money," by entering into the field of
lending money traditionally controlled by banks and other financial
~ A non-ferrous metal company from Suzhou offers an
example, the company has set up a small loan company that is able to
earn annual returns of between 15 to 17% on average.
~ Our newspaper
has learned that real estate companies are now sourcing over 20 percent
of their funding needs from trust companies.
~ An official engaged in
currency policy at China's central bank said he was confused about the
phenomenon, "Which industries and companies are making such large
profits of providing credit? If everyone is lending money, then what
final use is the money actually being put to?"
Original article: [Chinese]