As China Orders Its Smaller Banks To Load Up On Cash, Is The Biggest Ever "Unlimited QE" About To Be Unleashed?

Tyler Durden's picture

The Chinese new year may be over which following a last minute bailout of its insolvent Credit Equals Gold Trust product was largely uneventful, but already concerns about domestic liquidity are once again rising to the surface following reports that China’s banking regulator ordered some of the nation’s smaller lenders to set aside more funds to avoid a cash shortfall, which as Bloomberg notes signal rising concern that defaults may climb.

Specifically, "China Banking Regulatory Commission branches asked some city commercial banks and rural lenders to strengthen liquidity management this year, the people said, asking not to be named as the matter is confidential. Different requirements are being instituted by province, such as quarterly stress tests, after CBRC studies last year showed increasing risks at those lenders, the people said."

“Smaller banks are the weakest link of China’s financial system because their lack of a stable deposit base would force them to seek more expensive funding and offer more risky loans,” said Liu Jun, a Wuhan-based analyst at Changjiang Securities Co. “They will be hardest hit when borrowing costs are elevated and the economy slows.”

The CBRC action was to be expected in the aftermath of news throughout last year, confirming that China's bad debt demons will soon be in need of a violent exorcism: "The requirements add to steps taken to protect against soured loans weighing on China’s economy, which included speeding up bad-loan writeoffs and limiting local government debt sales."

Recall that as we reported previously in Big Trouble In Massive China, total losses from bad debt discharges could rise to a mind-boggling $3 trillion which would once and for all settle any debate about just how hard or soft China's "landing" (or is that lending?) would be: "The nation might face credit losses of as much as $3 trillion as defaults ensue from the expansion of the past four years, particularly by non-bank lenders such as trusts, exceeding that seen prior to other credit crises, Goldman Sachs Group Inc. estimated in August."

It has gotten so bad that even China has started releasing official data confirming a very disturbing trendline -one of soaring NPLs at China listed banks.

Obviously, the numbers indicated in the chart above are merely a fraction of the real state of bad loans permeating the country's financial system. One needs to merely look at the ridiculous amount of total corporate debt as a % of GDP in China - highest in the entire world - to know that this particular fable will not have a happy ending:


Which is why China is rushing to proactively prepare the system to have buffers in advance of what may be a worst case scenario:

Some of the banks were asked by their local CBRC branches to set aside reserves to ensure cash supply for 30- to 45-day periods, the people said, declining to identify the names of the banks. Press officers at the CBRC’s headquarters in Beijing didn’t return three calls seeking comment.


China’s money markets are playing a greater role in credit allocation and borrowing costs as the central bank has moved to liberalize interest rates and make the economy less reliant on banks for funding. The PBOC abolished controls on bank lending rates in July and the Communist Party said in November it wanted markets to play a “decisive” role in pricing capital.


“When the valve of liquidity starts to tame and curb excessive credit expansion, money-market rates, or the cost of liquidity, will reflect that,” the central bank said in a Feb. 8 report. “The market needs to tolerate reasonable rate changes so that rates can be effective in allocating resources and modifying the behavior of market players.”


One or two small Chinese banks may fail this year as they get about 80 percent of their funding from interbank markets and higher-cost deposits in savings vehicles known as wealth management products, Fang Xinghai, a bureau director at the Office of the Central Leading Group for Financial and Economic Affairs, said in November. The group is the highest-level agency within the Communist Party for financial and economic policies.

Of course, the real panic will commence once the financial turmoiling shifts from the small banks to the big ones: "China’s five biggest state-owned banks and 12 national lenders controlled more than 60 percent of the nation’s 148 trillion yuan of banking assets at the end of 2013, according to CBRC data. Other financial institutions including 144 city commercial lenders, 337 rural banks and more than 1,900 rural cooperatives owned the rest."

Talk about "Too Big To Fail."

Incidentally, the topic of China's inevitable financial crisis, and the open question of how it will subsequently bail out its banks is quite pertinent in a world in which Moral Hazard is the only play left. Conveniently, in his latest letter to clients, 13D's Kiril Sokoloff has this to say:

Will the PBOC’s Short-term Lending Facility (SLF) evolve into China’s version of QE? While investor attention has been fixated on China’s deteriorating PMI reports and fears of a widening credit crisis, China’s central bank is operating behind the scenes to prevent a wide-scale financial panic. On Monday, January 20th, 2014, when the Shanghai Composite Index (SHCOMP, CNY 2,033) fell below 2,000 on its way to a six-month low and interest rates jumped, the central bank intervened by adding over 255 billion yuan ($42 billion) to the financial system. In addition to a regular 75 billion yuan of 7-day reverse repos, the central bank  provided supplemental liquidity amounting to 180 billion yuan of 21-day reverse repos, which was seen as an obvious attempt to alleviate liquidity shortages during the Chinese New Year. However, it is worth noting that this was the PBOC’s first use of 21-day contracts since 2005, according to Bloomberg. Small and medium-sized banks were major beneficiaries of this SLF, as the PBOC allowed such institutions in ten provinces to tap its SLF for the first time on a trial basis. A 120 billion yuan quota has been set aside for the trial SLF, according to two local traders.


The central bank also said it will inject further cash into the banking system at regularly-scheduled open market operations. This is a very rare occurrence, as it is almost unprecedented for the central bank to openly declare its intention to inject or withdraw funds at regularly-scheduled open market operations. Usually, these operations only come to light after the fact.


The SLF was created as a brand new monetary tool for the central bank in early 2013 and was designed to enable commercial banks to borrow from the central bank for one to three months. Since its creation, however, the SLF program has been used with increasing frequency by the central bank.

The latest SLF is remarkable for two reasons: First, as mentioned earlier, this SLF was expanded to allow provincial-level small- and medium-sized banks, for the first time, to tap liquidity from the central bank.  As local financial institutions are usually both the major issuers and holders of local government debt, the expansion of the SLF to include local financial institutions opens a new channel for liquidity to flow from the central bank to local governments. This may suggest that the central bank, which is now on high alert for systemic risk, is willing to share some of the burden of local government, though on a very selective and non-regular basis.


The second key reason is embodied in the following central bank announcement: “[we will] explore the function of the SLF in setting the upper band of the market interest rates.” In other words, in the event that interest rates spike higher due to a systemic crisis, the central bank can intervene, via the SLF, to bring rates back down if it so desires. In addition, the PBOC did not disclose any set cap on the SLF, implying that unlimited liquidity could be provided as long as the market’s rate spike exceeds the bands set by the PBOC.




Most important, the SLF appears to represent the PBOC’s strategy to avert China’s widely-publicized local government debt and banking-system problems. It is  worth noting that even though local government debt amounts to 30% of GDP and is growing at an alarming rate, China’s central government is relatively underleveraged, with a debt-to-GDP ratio of only 23%, which is significantly lower than the emerging-market average. Therefore, Beijing has considerable unused borrowing capacity to share some of the debt burden taken on by local governments, which would have the additional positive impact of lowering borrowing costs for those governments.

In other words, the PBOC is laying the groundwork for what developed markets would call an open-ended liquidity injection which can be use to bail out one and all banks on an a la carte basis. Or, in the parlance of our times, the biggest QE bazooka of all because with total banking assets of nearly $25 trillion, said bazooka better be ready to fire at a moment's notice.


The only question is when will the market force China's central planners to demonstrate that unlike Paulson's bazooks, the one in Beijing is not a dud...

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Murf_DaSurf's picture



The road to hell is paved with good intentions

SilverDoctors's picture

wouldn't surprise me, Jim Willie is stating that a currency crisis is about to slam the US in the face, and that the Fed will introduce a new American dollar:

Peter Schiff has been stating that Yellen will be forced to drastically increase QE past $85 B a month very shortly as well.

Looks like things are about to get interesting!


maskone909's picture

jim willie is a cool cat i would love to have a beer with that guy

kliguy38's picture

my bet was a friendly 100$ with two Goldman hedge boyz that Yellen would go donkey kong by may with 150B/mo in QE.........this was in early november and they didn't yell that I was crazy.....they took the bet but you could tell then they were thinking the same.

Seasmoke's picture

$125B .... Hope u at least get a push on ur $100 for being correct.

BaBaBouy's picture

Thanks... MOAR PAPER For The Whirld To Eat!!!

Buy GOLD, Bitchez...

TheReplacement's picture

You can't even wipe your ass with Bitcoin.  It's not real!

Notarocketscientist's picture

You mean she's going to fuck a donkey?   Will she blow the donkey before letting it ride her?   Can the donkey have a blindfold?   She will pay the donkey HOW MUCH????

DoChenRollingBearing's picture

Jim Willie has made some great calls, but has missed a few.  Nonetheless, he is one of the most interesting reads out there.

fonestar's picture

One of the best things about his articles and interviews is that (coming from a technical background at DEC I believe) he does not confuse the price of gold with the gold price.  Something that apparently flies right over the heads of the typical poster here.


HyBrasilian's picture

Speaking of 'typical poster' here... [& since you're the resident scribe]


Do me a favor?

Please give us an [UP TO DATE] accounting of "all the bitcoins mined thus far"...

For someone like yourself ~ A number like this should, EASILY, be at the top of your head [so I trust that is not a PROBLEMATIC request]...

The purpose of my inquiry is that I'd like to make a 'ball park' estimation as to the ENTIRE 'notional' value of the BITCOIN market [which could easily be determined by the aggregate number of MINED bitcoins TIMES their VALUE on exchanges]... I'm thinking that, from you, this information would be WILLINGLY FORTHCOMING [in that ~ it is undoubtedly your determined goal to PROVE that BITCOIN is 'where it's at' for the future]...

I anxiously await...



fonestar's picture

There's over 12.25 million BTC mined so far and no way of telling how many have been lost forever (I expect a very large percentage based upon my own experience dealing with end users).

All of this information is easily available.

HyBrasilian's picture

There [are] "over 12.25 million BTC..."Assuming you're using PLURAL [syntax/punctuation]"...


Notwithstanding ~ & 'ok then'

Would you agree with me [more or less], then, that IN THIS MOMENT, the net 'notional' value of all the BTC's in existence [inert &/or fluid] is:

Formula: $680 [hell ~ I'll give you the benefit of the doubt & say $700 X 12.5 million] = 9 billion ~ 750 million USD?

...& forget about this for a moment while you contemplate your answer... I'm simply interested in AGGREGATES...



HyBrasilian's picture

Over 2 HOURS LATER [& still NO REPLY from one of the most frequent loud mouths on ZH]...


I guess you must be shopping for LAMBO's... Either that ~ or trying to escape from mom's basement so that you can go buy some new comic books...

DUDE... It's not that hard... It only requires a 'YES' or 'NO' answer...



Which means... [as of now]... This will be my 'GO TO' reply to all the BTC bullshit that I ever hear...


EscapeKey's picture

your punctuation and use of ascii characters remind me of spalding smailes


HyBrasilian's picture

before or after the hamburger [no, cheeseburger, no 'boogers', at the clubhouse turn]?


Indulge me... FOLLOW THE LOGIC STREAM... [above]...

HyBrasilian's picture

Clutching fonestar's DICK [whilst shopping for LAMBO's ^^^^]... one hour later...

eclectic syncretist's picture

Jim Willie is a Ph.D. statistician who makes a living continually predicting six-sigma events are about to happen at any moment.

EscapeKey's picture

I have gotten a bit bored of continuously reading these alarmist articles. I've spent too much time going "AAAAAAAAAAAAAAaaaaaaaa..." and am now running out of breath.

It will eventually happen, of course, but not in the way anyone predicts. 

Skateboarder's picture

Waiting for the crash is one of the best ways to waste your time.

Oxbo Rene's picture

Seems like that's all I do these days = keep reading all these doom and gloom posts and articles about the coming collapse, just waiting, day to day, to witness this once in a lifetime event, hell, probably gonna die of old age before it all comes to pass .....

Obama_4_Dictator's picture

I read the article, interesting angle.  What does this mean for Gold and Silver?  Will it be outlawed here in the US?  Will they be allowed to be converted into the new currency?  Would you even want to convert them?  So many questions....

WillyGroper's picture

Why would they create a shit dollar when their intent is to chip you for total control?

My guess since Ft Knox has been looted it will be outlawed & seized again just like FDR's time in office. Wonder how many will comply...NOT

You won't be able to get it past Chertoff's cancer machines. 

The fence is to keep us in.

ElvisDog's picture

What would a new American dollar accomplish? It would have the same problems as the old one. Why would issuing a new dollar be any better than simply printing/QE'ing more of the old one. Currency conspiracists never seem to explain the "why".

Annoyingserf's picture

Implied faith.  

Question is, 'why' folks keep falling for the same story-line. 

fonestar's picture

Face it... you love it.  Any paper shit they shove in your face and tell you to use.

NotApplicable's picture

You don't seem to understand the difference between foreign and domestic holders. A new dollar for domestic use that you will be forced to use (aka "legal tender") has to be created in order to keep the foreign holders from driving the price of the old dollar to zero, once the real race for the exits starts.

New dollars will be devalued in order to steal value from you, so that this value can be used to prop up the old dollars for another day.

It's all about keeping the dollars from returning all at once, which would collapse the entire financial system. So, they will bleed the last bit of wealth out of the US in order to manage the transition.


SovietCong's picture

Whatever future may have in store for America, I think it is important to remember that China does not play by the same rules. One obvious parameter is banking sector ownership structure, and the government's ability to influence banks using the most direct -- and therefore the most reliable -- means: such as giving your guys on the bank's board instructions on how the newest signal of the monetary policy should be transmitted to the bank's day-to-day operations. Also, the idea of QE sort of works differently if so much of the banking sector is state-owned. 

The question of what will happen when the "financial turmoiling" shifts from small banks to the big ones ignores that the top-tier Chinese banks are a wholly different market segment from those small, local or regional banks. They have a different access to capital, different incentives, much tighter control by the Party, and -- perhaps most importantly -- they serve a different clientele. Those banks finance most of China's industry & infrastructure, often on terms that are far from arms-length. The government and the PBOC do not, and will not, treat any of those banks in the same way the small banks are treated. (Which is not to say that neither of the big banks can get in trouble; quite the opposite.) I guess the key idea in the article is that the PBOC wants to make sure it gets an effective toolbox for its monetary policy, and that the market responds as it should. Whether a Chinese QE ad infinitum is coming, I am not so sure.

WillyGroper's picture

Not that I care for the corrupt House of Saud, but there's nothing I'd like better than for them to sing like a canary re: 911.

Hopefully sooner rather than later.

Mister Kitty's picture

Today China.  Tomorrow the apocalypse.  Repent, you idolators.  Bastards.

LMAOLORI's picture



Straight to hell with intentions like working for JP Morgan or UBS (and skipping out of the country with the money and not paying taxes the peansants were forced to pay). I wonder how much of the leaders and rich elites money is in these banks?


Chinese official made job plea to JPMorgan Chase chief


UBS puts two on leave over hiring of Chinese banker: IFR


Beijing loses billions as rich skip taxes
All is chosen's picture

"Our crap buys more gold than your crap"

Rafferty's picture


Genuine question:  everyone says the dollar is becoming worthless and its days as

THE reserve currency are over.  Yet as I understand it, the proportion of international transactions which use the dollar has gone down only slightly in recent years.  And again, foreign buyers are still purchasing huge amounts of US Gov bonds.  It's not only the Fed you know.

An explanation would be welcomed.


Carl Popper's picture

Buy gold and silver


The dollar is a single bagger while all other paper currencies are a double bagger.


People here focus too much on how bad the dollar is without comparing it to all the other floozies at the bar. 


Wishful thinking the dollar will lose its status.   





NotApplicable's picture

Here's the key to your statistic.

"As measured by an ever depreciating currency."

Greenskeeper_Carl's picture

This is why all those who think china is planning some kind of gold back currency are wrong. You can have these kinds of shenanigans and have enough gold to back it. They won't do it for the very same reasons we went off the gold standard in the US. A gold standard doesn't allow a totalitarian govt and banks to create money from nothing to build empty cities and bridges to nowhere, which is why all govts and banks hate it.

LMAOLORI's picture



I think China would like to be the leader but no one would trust China anyway and their system is too primative in comparison. I agree with you about allowing for a totalitarian government that's why taking us off the gold standard was a two fer.  In the future I believe the plan is a cashless society as it will allow for even greater tracking.

viahj's picture

the IMF/BIS will push the SDR to be the new reserve currency, may even rebalance it and repackage it.  currently the Yuan is not in the basket, why?   not enough gold, which is rapidly being fixed.  I don't think that China wants to go it alone as a reserve currency and all of their actions indicate to me (who doesn't now much) that they are preparing to enter the Yuan in the SDR basket with a heavy weight, replacing the USD as the heavy weight. 

from the imf: The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies,today consisting of the euro, Japanese yen, pound sterling, and U.S.




Japanese yen


Pound sterling


U.S. dollar


RaceToTheBottom's picture

To become a member, you need two things:

1)  An amount of Gold, but not anywhere near the value of your currency.

2)  A commitment to take part in the Race To The Bottom currency debasement in  exactly the same rate as the other members.

Those two points in addition to a quantification of Inflation that relies on substitution and results in no inflation result in the games continuing indefinitely

eworrall's picture

not necessarily. Maybe they have been printing paper like mad over the last 5 years because is it hugely overvalued and they can buy real goods with it (e.g. productive capacity, commodities, etc) before value drops precipitously when faith in US$ begins to wane.  Also, more paper they print, the more it stimulates demand, the longer the US$ lives ... the more time they have to acquire gold for dirt cheap 'paper' prices. US$ value (and other paper to some extent) falls, losses on Chinese US$ holdings ... offset by higher revaluation of gold. This is the scenario that makes sense to me. To believe otherwise you almost have to believe the Chinese are stupid.  Don't think so personally.

As to a restraint, i think this is missing the point as well. Lesson from history is that hard money is the only way to build and empire. They plan to do this (IMO), its just that they want to milk the current system for as long as possible first. If they don't print money to buy infrastructure then, upon "reset", they would be starting behind the eight ball with poor infrastructure.  no point in that.

eworrall's picture

not necessarily. Maybe they have been printing paper like mad over the last 5 years because is it hugely overvalued and they can buy real goods with it (e.g. productive capacity, commodities, etc) before value drops precipitously when faith in US$ begins to wane.  Also, more paper they print, the more it stimulates demand, the longer the US$ lives ... the more time they have to acquire gold for dirt cheap 'paper' prices. US$ value (and other paper to some extent) falls, losses on Chinese US$ holdings ... offset by higher revaluation of gold. This is the scenario that makes sense to me. To believe otherwise you almost have to believe the Chinese are stupid.  Don't think so personally.

As to a restraint, i think this is missing the point as well. Lesson from history is that hard money is the only way to build and empire. They plan to do this (IMO), its just that they want to milk the current system for as long as possible first. If they don't print money to buy infrastructure then, upon "reset", they would be starting behind the eight ball with poor infrastructure.  no point in that.

LawsofPhysics's picture

The Chinese state is discharging all kinds of bad debt.  I think everyone else should too.  Bring it motherfuckers.

madbraz's picture

Not so different than what we have here, with the NY FED rolling over $100 billion in reverse repos every day (plus securities lending of some $18 billion of which $8 billion is rolled over), from zero 6 months ago when the facility didn't exist.  Expect this value to jump to $200 billion in the near term and can perhaps approach $1 trillion should a crisis hit.


The only thing that could end this farce we call global markets would be a requirement for everyone to put their cards down, show their hands.  No rollovers of futures positions, derivatives and other gambles. Cash settlement, like they did with silver in the 1980s.  


It would be a sight to see...never going to be allowed to happen.

LawsofPhysics's picture

It will happen.  The kleptocrats aren't ready yet.  They are still buying physical assets and dependable tribes.  Once they and their own are secure, they will ignite WWIII, not before.

madbraz's picture

Wow, today's NY FED reverse repos total $112 billion.  

LawsofPhysics's picture

The currency crisis is already here!

Do you know which primary dealer this was and what the "haircut" rate was?

Rising Sun's picture

Hooray for China - hooray for floating dead pigs!!!