China Launches CNY500 Billion In "Stealth QE"

Tyler Durden's picture

It has been a while since the PBOC engaged in some "targeted" QE. So clearly following the biggest drop in the Shanghai Composite in 6 months after some abysmal Chinese economic and flow data in the past several days, it's time for some more. From Bloomberg:

  • CHINA’S PBOC STARTS 500B YUAN SLF TODAY, SINA.COM SAYS
  • PBOC PROVIDES 500B YUAN LIQUIDITY TO CHINA’S TOP 5 BANKS: SINA
  • PBOC PROVIDES 100B YUAN TO EACH BANK TODAY, TOMORROW WITH DURATION OF 3 MONTHS: SINA

Just as expected, the Chinese "derivative" currency, the AUD, goes vertical on the news, and the S&P 500 goes vertical alongside:

 

For those confused what the SLF is, here is a reminder, from our February coverage of this "stealth QE" instrument.

* * *

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.

Comment viewing options

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

this can carry on for a loooooong time.

El Oregonian's picture

SLF? Is that like a Chinese "Selfie"???

Ruffmuff's picture

It stands for "jump you fuckers"

knukles's picture

Oh see, China is in such great shape!  Green bamboo shoots!  Pass the MSG.

SAT 800's picture

No doubt these new paper monies will increase the electrical usage and factory activity. Isn't that always the way it works?

Divided States of America's picture

Well obviously SUMTING WONG in the Chinese financial system for them to do this right now.

TruthInSunshine's picture

This is being done to float Alibaba long enough for the insiders to cash out.

eclectic syncretist's picture

They're probably just printing up enough to buy what little is left of the West's remaining gold and silver.

fx's picture

gee, 500bn yuan? that#s in $$ terms what the Fed has been doing per month. A rounding error, so to speak.

BurningFuld's picture

The USSA will not be outprinted! Man your stations boys. Turn on those presses.

Bangalore Equity Trader's picture

Listen, American. Do you have cancer? Are you sure you don't have cancer. "CANCER". Shouldn't you check to see if you "HAVE CANCER". Cancer is bad and is running rampant in USSA. Everyone in USSA has cancer. Are you sure you don't have cancer?

Grande Tetons's picture

Waiter, I will have two of what he is drinking.

Bangalore Equity Trader's picture

Listen. It's serious and "DEADLY". Cancer. It will kill you. Don't you know? The cancer is here and is "INSIDE" of you in America. Cancer will kill "YOU". Cancer cannot be avoided in America.

gmrpeabody's picture

...seems to attack the brain first.

Just saying...

eclectic syncretist's picture

Remember, everything gives you cancer. There's no cure. There's no answer.

https://www.youtube.com/watch?v=1oDAkmfoAgA

 

Deathrips's picture

Tetons,

 

Ill join ya! That guys FUCK'd Up.

 

LOL

 

RIPS

whatsinaname's picture

are you an idiot Bangalore ? Say nothing if you have nothing sensible to say. Been watching your drivel for a while now.

Bangalore Equity Trader's picture

Listen. You defiantly have "CANCER"! Get checked by the doctor. Cancer will "KILL".

nscholten's picture

Its so popular we now have a TV series.  " The Redband Society" 

Its what the cool kids are doing.  Great for business because we know there is no money in cures only treatment.

 

Bangalore Equity Trader's picture

Listen. Many already know they are highly "PRONE" or infected with a genetic sleeper cell. That's why they will get pissed at me for saying this.

Your "GOVERNMENT" wants you to get cancer! And you will! It's incubating in your food, air, water, and "THOUGHTS".

Herd Redirection Committee's picture

You are severely overusing the word: Listen.

Try to gain some credibility before demanding people "listen" to you.

Latitude25's picture

I have cancer of the brain caused by customer service reps in India.

Bangalore Equity Trader's picture

Listen. This isn't some cavalier comment used to provoke thoughts of fear in the reader. This is a warning sent by someone who knows. Cancer in the USSA is unavoidable.

Don't have it yet? You will...

Bangalore Equity Trader's picture

And Listen! It's a known fact that dogs can "SMELL" cancer in the human. But you Americans ignore the medical advice.

"CANCER" is embedded. In your body, a sleeper cell. Waiting for the opportunity to thrive. "CANCER" is not afraid of you big bad Americans.

TruthInSunshine's picture

You're a classic sock puppet.dotgov who tries to interrupt and slide the comments, disrupting the conversation.

You are the cancer.

Bangalore Equity Trader's picture

Listen. Your fear of "CANCER" is palpable. I understand. Everyone thinks it's "NOT GOING TO HAPPEN TO ME" but one day you stop to think "WHY AM I FEELING SO RUN DOWN?".

"CANCER"? Has it taken hold, "YET"?

wanderintheland's picture

Shouldn't you be busy worshiping a cow or something?

hedgeless_horseman's picture

 

 

Takes some of the load off Kevin, now that the Brits have their own little problem.

LawsofPhysics's picture

Yep, in addition, as many have demonstrated, the chinese want absolutely nothing to do with the world's reserve currency.  Especially since they have the majority of the world's customers and are quite willing to let the West destroy itself.

Ruffmuff's picture

Let's all shit all over the currencies. More bogus bucks the elites can buy all the assets up with. We on the other hand will have only a few shreads to wipe our ass with.

 

gmrpeabody's picture

Shouldn't wipe your ass with something that dirty...

you'll get cancer!  ;-)

LawsofPhysics's picture

Speak for yourself, real wealth/capital comes from ownership and control over productive assets and equity.  You really think that the truly wealthy hold the majority of their wealth in currency?

 

FAIL.

Winston Churchill's picture

1/3 productive land.1/3 PM's,1/3 fine arts, has worked for a thousand years.

Paper currency is for serfs.

jubber's picture

someone sure fucking knew this was coming !

Dr. Engali's picture

The worst thing that could ever happen is to have "investors" take a loss. Can you imagine the horror?

dracos_ghost's picture

Wait a minute. QE is OUR WORD. This is racist.

ekm1's picture

Peanuts.

This is politburo bailing out their own closely run pyramid schemes

 

Move on. This is nothing

 

Fed has so far monetized $4 trillion of derivative losses from primary dealers, Warren Buffett etc and still going on through Brussels.

Infinite QE's picture

Their bank is run by the same madmen that run ours.

KnuckleDragger-X's picture

No, they have their own lunatic asylum to screw things up.

Yen Cross's picture

    About (1) month of QE before it was scaled back.

81,298,860,000.00 US Dollars   There goes the aud/usd chewing through those stops @ .9055/60.
luckylongshot's picture

There seem to be a steady stream of self proclaimed financial experts on ZH who look at China with the underlying assumption that the Chinese banking system is Rothschild controlled and then predict gloom and doom for China. The problem is this assumption is wrong. China owns its central banks and can cancel loans, do QE and issue money interest free without creating any meltdown pressure. This article is as wrong as all the other ones predicting China's pending demise.

SAT 800's picture

Don't confuse the muppets with facts; they'll hate you for it.

LawsofPhysics's picture

Precisely why they don't want the scrutiny of holding the world's reserve currency.  this isn't to say they don't know how to allocate capital as this is another thing altogether. far too many people confuse the two as well as money and capital.

 

It is what it is.  In any case, world trade is the only thing that really matters.  once that stops, then and only then would any sort "demise" for anyone begin in earnest.

ekm1's picture

Unlike some of us, most people have not experienced central command in their lives

gmrpeabody's picture

They, apparently, have not had the pleasure of meeting Mrs. peabody...