China's Mea Culpa: "It Is Not That There Is No Money, But The Money Has Been Put In The Wrong Place"

Tyler Durden's picture


Ten days ago, we penned "Chinese Liquidity Shortage Hits All Time High", in which we predicted ridiculous moves in the Chinese interbank market as a result of short-term funding literally evaporating as a result of the PBOC's stern refusal to step in and bail out its banking sector (despite the occasional rumor of this bank bailed out or that) by injecting trillions in low-powered money. A few days later this prediction was confirmed when the overnight repo and SHIBOR market for all intents and purposes broke down as was also reported here previously.  Now, for the first time, China, via the Politburo's Chinese Hilsenrath-equivalent, Xinhua, has provided its own version of events which is as follows: "It is not that there is no money, but the money has been put in the wrong place."

Oh, so in a world of $12 trillion of excess liquidity provided by central banks in the past 5 years there is a slight capital misallocation problem the world's central-planning states (virtually all of them these days)? And despite injecting trillions, none of this cash is actually going to growing the economy (as we have discussed for the past two years and most recently here ). Why thanks for clarifying (and confirming) all of that China.

From the FT:

The government has yet to give an explicit explanation for the central bank’s move to allow rates for lending between banks to surge on Thursday. But the commentary from Xinhua, which Beijing often uses to make policy statements, comes the closest it has yet to that.


The news agency argued that while banks, the stock market and small and medium-sized enterprises lacked money, the broad money supply M2 had still expanded by 15.8 per cent compared with the same period last year, new loans were still high and total social financing aggregate, a broad liquidity measure, continued to grow rapidly in the first five months of this year.


Is China really experiencing a ‘cash crunch’ where liquidity is being squeezed?” asked Xinhua, and added that many large enterprises continued to spend heavily on wealth management products, capital was still in search of speculative investment opportunities and private lending continued to be strong.


This contrast clearly shows that this seemingly ferocious ‘cash crunch’ is in fact structural funding constraints caused by a misallocation of funds. It is not that there is no money, but that the money has not reached the right places,” the commentary said.

Of course, we have covered this topic extensively verbally, as well as visually, both here...

and especially here:

The chart above, from "China Joins The Broken "Keynesian Multiplier" Club" is precisely what Xinhua is lamenting: unprecedented credit formation and yet little of it trickling down to economic growth, hence a "broken Keynesian multiplier."

Which, of course, is what we have been warning about since the beginning: under central planning capital is always, ALWAYS misallocated in a way that ultimately makes any eventual marginal credit/money formation meaningless. As China has found out the hard way.

But here is the punchline and what was left unsaid by China: if what the PBOC is implying is true, then between the unwind of the Chinese Copper Financing Deals, and the less relevant but still substantial, Wealth Management Products, the country is about to undergo an unprecedented deleveraging that could amount to over CNY1 trillion in order to force reallocate capital in a more efficient basis.

That's right: a massive deleveraging coming dead ahead in China just in time to shock the market still reeling from the threat of the Fed's tapering. And it is not as if China needs to be spooked any more: "The mood remained jittery at the weekend. When a technical glitch caused by a long-planned software upgrade at Industrial and Commercial Bank of China made cash withdrawals impossible for almost one hour at the bank’s ATMs, many consumers fretted that one of the biggest state lenders was in trouble." Maybe not today, but force deleverage a few hundred billion, and it sure will be.

It also means that there will be no respite for short-term funding, which while maybe not suffering from lack of money, it certainly is suffering from the lack of money in the right place: the first milestone of a failing central-planning regime.

Just as China finally admitted.

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Sun, 06/23/2013 - 12:37 | 3683995 Motorhead
Motorhead's picture

Enjoy your Sunday, bitchez!

Sun, 06/23/2013 - 12:42 | 3684004 xtop23
xtop23's picture

No way!! You mean those ghost cities were a horrible misallocation of funds and resources!??


Sun, 06/23/2013 - 12:44 | 3684011 Troll King
Troll King's picture

It will be funny when there is a margin call on the PBoC and they have to liquidate their Treasury holdings.

Sun, 06/23/2013 - 12:51 | 3684035 NidStyles
NidStyles's picture

That is a shitstorm waiting to happen. The Bond market will implode.

Sun, 06/23/2013 - 13:04 | 3684059 ACP
ACP's picture

The lines keep getting better and better. Yes, dropping your money in the toilet and then flushing said toilet is probably the wrong place. Yes, toilet is a disposal unit, not a place for safekeeping.

The funny thing is, this sounds exactly like the kind of drivel that Cramer or Krugman quote on a regular basis, and suckers will buy it.

Sun, 06/23/2013 - 13:00 | 3684063 xtop23
xtop23's picture

Come Monday, a lot of faces are going to get ripped off. 

Spike in metals? Going to be a lot of Chinese looking for safety.

Sun, 06/23/2013 - 13:36 | 3684143 Jaspergers
Jaspergers's picture

"There is money (lefta uparxoun)" Papandreou, 2009

Sun, 06/23/2013 - 14:25 | 3684257 max2205
max2205's picture

There's a big number of balls in tge air. Politically financially and conspiracyitive.  2 or many will hit the ground

Sun, 06/23/2013 - 16:57 | 3684614 xtop23
xtop23's picture

After reading the BIS statement, it would make more sense for a dollar rally and another metals monkeyhammering.

Of course the markets making sense ..... yeah. 

Sun, 06/23/2013 - 19:40 | 3685032 GMadScientist
GMadScientist's picture

"You mean those ghost cities were a horrible misallocation of funds and resources!?"

Depends on how you look at it...fighting them off or keeping them all in prison is probably more expensive than having them work outside with shoddy concrete as long as they keep busy and don't step on a politburo honcho while they rake in the loot from all the "less equal than others" floating pigs making those iPads that can even register the prods of your pudgy little phalanges.

Sun, 06/23/2013 - 12:54 | 3684042 Renewable Life
Renewable Life's picture

China and its citizens are currently hedging against the "failed systems of the west" by buying physical gold and silver as fast as they can humanily aquire it! While they still enjoy the spoils of the "old system" too!

What are Americans and Europeans doing?? Oh that's right........watching the fucking Xfactor and Dancing with the Stars on devices they borrowed money to buy, while sitting on their fat asses (literally) with their hands out, waiting for the next welfare check and or entitlement check to arrive??? As their supposedly "elected" governments spy on them more and more daily for both control and corporate profit!  

Who are you betting on, comes out on top, when the SHTF??????? Think carefully, try not to bellow out some cold war era propaganda or nationalistic inspired answer, before you've walked a mile in any American inner city and and then listened to any local or federal government meeting talking about how the ONLY answer to every problem is more spending and higher taxes and fees! 

Sun, 06/23/2013 - 12:57 | 3684047 Never One Roach
Never One Roach's picture

Their trillions in 'Bailout' sure made alot of Multi-Milionaire realtors, RE developers and local Gubmint officials very very wealthy.


The hoi poloi are still just that...hoi poloi.

Sun, 06/23/2013 - 15:44 | 3684407 UK debt marsh
UK debt marsh's picture

in the wrong bet: overseas for the smart ones in a bank in singapore

Sun, 06/23/2013 - 12:40 | 3684002 Spawn of Cagliostro
Spawn of Cagliostro's picture

How many straws break the (global) camel's back?

Sun, 06/23/2013 - 12:44 | 3684013 StarTedStackin'
StarTedStackin''s picture




Don't worry Hilary2016 will clean up everything.....

Sun, 06/23/2013 - 12:59 | 3684060 Renewable Life
Renewable Life's picture

We need a President who has read the Declaration of Independence, the Constitution, and the Bill of Rights, and believes in their merits and is willing to die, to bring those merits back into the American system of Government, vagina or not!

Sun, 06/23/2013 - 13:30 | 3684133 Charles Wilson
Charles Wilson's picture

I'm sure Ann Coulter would be thrilled to be President!

Sun, 06/23/2013 - 15:39 | 3684397 Colonel Klink
Colonel Klink's picture

That sure as hell doesn't describe Hellary.  No morals in her, no truth in her, no soul in that "thing".

Sun, 06/23/2013 - 16:02 | 3684457 MisterMousePotato
MisterMousePotato's picture

"We need a President who has read the Declaration of Independence, the Constitution, and the Bill of Rights, and believes in their merits and is willing to die, to bring those merits back into the American system of Government, vagina or not!"

Well ... yes. And a vagina.

Ask Hillary!

Sun, 06/23/2013 - 13:47 | 3684178 gdogus erectus
gdogus erectus's picture

The one we have doesn't count?

Sun, 06/23/2013 - 12:43 | 3684009 fonzannoon
fonzannoon's picture

another great rotation.

Sun, 06/23/2013 - 12:44 | 3684014 Midasking
Midasking's picture

Rising Rates will blow this fake economy sky high and take the currencies with it... welcome to the inflationary depression..

Sun, 06/23/2013 - 12:52 | 3684039 NidStyles
NidStyles's picture

All depressions are inflationary. They are caused by workers being driven out of the work force by excessively increasing pricing actions where profits are not capable of supporting the current numerical value of workers.

Sun, 06/23/2013 - 12:45 | 3684015 ISEEIT
ISEEIT's picture

Ahhh Sooo?

Sun, 06/23/2013 - 12:46 | 3684017 lolmao500
lolmao500's picture

While it's getting interesting in geopolitics.

Russia and Cyprus have reached a preliminary agreement about the use of Russian bombers an air base in Cyprus

Egyptian army 'ready to intervene to stop conflict'
Sun, 06/23/2013 - 12:49 | 3684033 FilthyPhil37
FilthyPhil37's picture

"We have plenty of money, we've just misplaced it."


It'll be in the last place you look. [That is, Goldman's back pocket.]

Sun, 06/23/2013 - 14:45 | 3684296 CheapBastard
CheapBastard's picture

"Who Stole My Pig."


China's authors' response to NYT worst seller, "Who Stole my Cheese."

Sun, 06/23/2013 - 12:55 | 3684046 Seize Mars
Seize Mars's picture

Well, well. "It is not that there is no money, but the money has been put in the wrong place."

It's called malinvestment.

Mr. Keynes, meet Mr. Hayek. Mr. Hayek, Mr. Keynes.

Sun, 06/23/2013 - 19:43 | 3685041 GMadScientist
GMadScientist's picture

Perhaps they buried it at the bottom of an abandoned mine (I hear they have a few they've tapped out).

Sun, 06/23/2013 - 13:03 | 3684072 Dareconomics
Dareconomics's picture

The real story of the market swoon since May 2 is the PBOC, not the Fed's taper.

Sun, 06/23/2013 - 13:04 | 3684073 jon dough
jon dough's picture

Prease to pick up birr, I reft my warret in my othel pants...

Sun, 06/23/2013 - 13:08 | 3684083 sitenine
sitenine's picture

Misallocation. Yes, yes, we've known this for years.

But, "...short-term funding literally evaporating as a RESULT of the PBOC's stern refusal to step in and bail out its banking sector (despite the occasional rumor of this bank bailed out or that) by injecting trillions in low-powered money."?

WFT? Is that you Tyler? Seriously? What a complete load of shit. Are we now to believe that bail outs are now the cure? After how many years of railing against the Keynesian bullshit that's going on in the West, you want us to believe exactly what about the East's adventures in money printing?

Sun, 06/23/2013 - 13:26 | 3684124 e-recep
e-recep's picture

where does tyler say it is THE cure? he is simply stating a possible consequence of a missing bail-out.

Sun, 06/23/2013 - 13:33 | 3684131 sitenine
sitenine's picture

Yeah, thanks. Don't want to 'miss' those bail-out 'opportinities', now do we? <facepalm>

Sun, 06/23/2013 - 14:35 | 3684272 JOYFUL
JOYFUL's picture

You are failing to understand how the doublespeak works here comrade...

if too big to fail banks get bailed out in the west.... they call it another failure of central planning and corporate cronyism.

If banks[big or small] in the Far East don't get bailed out... they call it another failure of central planning and corporate cronyism...

and as the formerly 'communist' nations of the world give daily instruction to the formerly 'capitalist' ones... in how supposedly 'capitalist' economies operate...

by letting shadow banking systems starve, taking measures to clean up corruption... letting short term pain in employment and industrial production numbers reduce impediments to longer term improvement... etc. etc.,

the uber-China bears of the "alternate" blogosphere gaze on grimly, and with great gnashing of teeth - at the spectre of their favorite hobbyhorse getting yet another acid-bath in reality.

Sun, 06/23/2013 - 14:53 | 3684310 sitenine
sitenine's picture

I'm just trying to say that the lack of bail-outs is not what CAUSED this situation. Tyler wrote, "as a RESULT of the PBOC's stern refusal to step in and bail out its banking sector". That's patently FALSE. Thank you for your input though, you are correct, and we all know this very well.

Sun, 06/23/2013 - 14:29 | 3684265 Tyler Durden
Tyler Durden's picture

As the other reader noted, i) highlight where anything about a bailout being a cure, or "the right thing", is said or even implied and ii) take your meds.

Sun, 06/23/2013 - 14:41 | 3684278 sitenine
sitenine's picture

Did you, or did you not, write this: "as a RESULT of the PBOC's stern refusal to step in and bail out its banking sector"?

Will the REAL Tyler please stand up!

Take meds - yeah, that's a good one. You're loosing your touch - you don't even insult well anymore. I'm thoroughly disappointed toady.

Sun, 06/23/2013 - 19:48 | 3685054 GMadScientist
GMadScientist's picture

You'll need to point out where the Tylers ever advocated the Chinese flooding their country with stimulus (even before the US did), letting fraud and misreporting run rampant across their entire banking structure, dollar peg shenanigans, and communism in general before you'd even have a chance of making a point.

Sit down, son, you're embarrassing yourself.

Sun, 06/23/2013 - 13:09 | 3684086 Let them eat iPads
Let them eat iPads's picture

Whoever said the Chinese were smart must have been a Chinaman.

Sun, 06/23/2013 - 13:14 | 3684100 timbo_em
timbo_em's picture

Don't worry, China! You are not alone in this. We just spent quite a fortune, that we had to borrow from our unborn kids, on delivering democracy to the Iraqi desert and some other country further east while our infrastructure goes more pear-shaped by the day. Forward!

Sun, 06/23/2013 - 13:32 | 3684129 buzzsaw99
buzzsaw99's picture

They spent money on kleptocrats, factory over-capacity, 2 million man army, faulty nuke subs, and ghost cities. So instead, in hindsight, they feel they should have spent it where exactly?


The problem isn't misallocation, it is decades of double digit growth in a finite world. The central bankers all claim to not understand the problem but it is a lie. Their whole system is a lie.

Sun, 06/23/2013 - 13:37 | 3684155 Hongcha
Hongcha's picture

Dwindling Chinese demand is why gold is getting crushed.  I have straw sandals on the ground and have yet to hear a single anecdote coming from the actual geographical area of the PRC to substantiate long lines crushing at the door to buy Au and Ag.

They will go to cash.

Sun, 06/23/2013 - 13:45 | 3684174 thunderchief
thunderchief's picture


The Chinese are great at buying things from the west they shouldn't.  Opium and US treasuries are just a few.  They know gold and they know a fake!

Sun, 06/23/2013 - 13:41 | 3684162 Colonel Walter ...
Colonel Walter E Kurtz's picture

Now where did I put that trillion dollar coin again? Help...anyone, anyone?

Sun, 06/23/2013 - 13:50 | 3684184 ekm
ekm's picture

All misunderstandings come from one and one misunderstanding only:

What is money?


If politicians bothered to understand what money is, it'd be different.

Sun, 06/23/2013 - 16:27 | 3684510 css1971
css1971's picture

Interestingly, I've found that people look at me like I'm a complete retard when I tell them they don't know what money is. Then as I explain it, they become completely baffled and very often will refuse to believe me.

Maybe 1 in 10,000 think about what money is and what the implications are.

Sun, 06/23/2013 - 14:24 | 3684252 Hongcha
Hongcha's picture

Thunderchief those are two great examples.  

Sun, 06/23/2013 - 14:31 | 3684269 Conax
Conax's picture

They gave the money to the banks, just like us.  If they're stupid, we invented the stupid.

Now they're saying, "Stop the presses, it ain't working.  Let's regroup."

Which makes them a step ahead of our Keynesian Overlords, IMO.

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