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China's Christmas Present To The World: Beijing Eases Again, Sets Non-Bank Deposit Reserve To Zero
Four years ago, on Christmas Day in 2010, China shocked the world when, unexpectedly, hiked its lending and deposits rates by 0.25% in order to battle inflation - only its second such hike in the prior 3 years. Since then things for the global economy haven't done exactly as expected, and certainly not for China, which as the following chart of constantly downward-revised IMF growth forecasts, has seen its growth rate tumble from double digits to just hanging on to 7%, and dropping fast.
Fast forward to last night, when in another Christmas surprise, China once again decided to adjust the cost of money, only this time instead of hiking it eased, and in an effort to shore up the world's second-largest economy, China Business News reported that:
- PBOC WAIVES RESERVE REQUIREMENT FOR NON-BANK DEPOSIT
As WSJ adds, at a meeting with big financial institutions on Wednesday, the People's Bank of China told participants that they will soon be able to add deposits from nonbank financial institutions to their calculations of their loan-to-deposit ratios, according to the executives. The move would add considerably to the banks' deposits and allow them to lend more.
Why is this a major development? Because as we reported over a month ago, "China's Shadow Banking Grinds To A Halt As Bad Debt Surges Most In A Decade" in which we explained:
As the following chart shows the main reason for China's relentless slowdown in its growth pace, which only two years ago was expected to rebound back into the double digits soon (at least according to the IMF), is the ongoing contraction in credit formation, which rising at 13.2% for new loans and 15.4% for TSF outstanding, was the lowest credit expansion recorded in China also since 2005.
So what is the main culprit for the contraction in China's all important credit formation? In two words: shadow banking. As Bank of America summarizes "shadow banking is being tamed" because "the changing structure of TSF suggests that Beijing’s efforts in controlling some types of shadow banking have made some achievements. Two major drivers for the steep decline of TSF from Sept to Oct were the falling of non-discounted bills (down RMB241bn) and falling trust loans (down RMB22bn). By contrast, new corporate bonds were at RMB242bn, a sharp rise from RMB151bn in Sept."
...
In other words, China's shadow banking not only ground to a halt, it actually continued moving in reverse!
...
In other words, as China finally reveals little by little the true extent of its gargantuan bad debt problem (which is far worse than ever in history, although Beijing is taking its time in making the necessary revelations: and after all Chinese banks are all SOEs - if needed they can all just get a few trillions renminbi in in liquidity injections a la the "developed west"), it is also slamming the breaks on the shadow banking system that for years what the sector where marginal credit creation, and thus growth as well as bad debt formation, was rampant.
...
So while it has been widely documented that Japan is doing all in its power to crush the Japanese economy and in the process to send the Nikkei to all time highs, little has been said about a far greater slowdown in domestic (and indirectly global) credit creation using the "China" channel, where shadow banking has just slammed shut.
And with unregulated Chinese Shadow Banking credit creation essentially halted, the PBOC has no other option than to boost traditional credit creation via official loan channels. Which is precisely what the PBOC did overnight:
Currently, deposits from nonbank financial institutions--such as fund managers and securities firms--aren't part of the loan-to-deposit ratio calculation. Adding those deposits would beef up banks' total deposit base and enable them to lend more.
Under China's regulatory requirement, banks in the country can't lend more than 75% of their total deposits.
At the same time, PBOC officials told the participants at the meeting that banks wouldn't have to set aside additional reserves for these deposits with the central bank, according to the executives. Big Chinese banks currently need to place 20% of their deposits with the PBOC as reserves, a figure known as the reserve-requirement ratio.
Remember when fractional-reserve banking required that banks retain some of the deposits before they re-lend them out. Fun times.
The WSJ concludes, that the two steps combined would have the same effect as a 1.5-percentage-point cut in banks' reserve-requirement ratio. Then again, by taking such "alternative" steps, it appears increasingly unlikely that the PBOC will engage in convention rate cuts as it is already struggling with an unprecedented amount of bad loans. From Bloomberg: "The waiver is seen as another move to replace a universal reserve-requirement ratio cut that the People’s Bank of China needs to boost credit and bolster the economy. Concerned that a broad reduction might send out a strong easing signal and bring turmoil to stock market, the PBOC has added liquidity by stealth at least four times in the past four months."
Naturally, financial pundits in China were delighted with this latest easing. From Reuters:
"The central bank setting a zero deposit reserve for non-banking financial institutions is a positive development for financials, particularly banking shares. Also, funds locked up by IPOs have gotten unfrozen since yesterday, largely improving capital conditions in the market," said Du Changchun, analyst at Northeast Securities in Shanghai.
Chinese stocks, which had been pricing in further easing by the PBOC for the past 3 months, a period during which the Shanghai Composite soared over 50%, were delighted by the latest easing move and surged even more: the Shanghai Composite Index closed up exactly 100 points, or 3.36%, rising to 3,072.5. This was the biggest jump in three weeks: Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., the largest lenders, advanced at least 3%.
And since China didn't actually cut rates, yet, there is continued hope that as China's economy slows down further, the PBOC will do everything in its power to boost stocks even higher, in other words, mimic the failed policies of its western central banking peers. That and of course, using a "hidden hand" in seeking to boost the economy, because the last thing China wants or can afford, is another bad debt surge. After all, with the recent record spike in non-performing loans, even Beijing is running out of couches and carpets under which it can sweep the trillions in debt that will henceforth exist in limbo: never to be repaid, nor to be acknowledged as being in default.
In short: after the BOJ and the SNB, it was the PBOC's turn to provide that extra "oomph" for risk and blow the global equity bubble that little bit bigger. And now we await the ECB to go full blown QE in the next few months, in preparation for the Fed to finally hike rates some time in 2015. And the simple reason why every single other central bank is doing everything it can to offset the removal of easy financial conditions by the Fed is because nobody has any idea, or even remembers, what a tightening cycle by the Federal Reserve looks like, or what it will do to global risk assets.
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Didnt China's economy recently surpass the US in terms of size?
This will "work" until everything breaks, same as all the other banking tricks in the world.
Looks moar like a non-event to Asian markets:
Yeah the Shanghai shot up 3.4% but still below the previous peak. The Hang Seng was flat and and the Nikkei closed red
So BFD!
http://www.marketwatch.com/investing/Index/HSI/charts?CountryCode=HK
http://www.marketwatch.com/investing/Index/SHCOMP/charts?CountryCode=CN
http://www.marketwatch.com/investing/Index/NIK/charts?CountryCode=JP
Merry Christmas Bitchez
https://www.youtube.com/watch?v=Ooc5eJc5SHA
thanks for sharing. the same...
In PPP terms, yes.
0/100 is a fraction.
Canada, Australia have a zero reserve deposit system.
Government guarantees it (if such thing exists, of course)
“'China is transforming from a major commodity exporter to a capital exporter,' Zeng said. 'The large going-out of Chinese capital means the country is able to participate in the restructuring of global industrial, supply and value chains, which are the keys to foster new competitive advantages,' he said.”
Doo-dah, doo-dah.
Classic...+ 1
Will this cause the AUssie Dollar to spike or tank?
Yes.
haha so botfth?!!
Its currently in a quantum state. It will do nothing until you take a position, then it will go opposite to your position.
right, thats because:
YOU will take a position based on the information provided to you ...directly from the source (they got people specialized in planting "information" ... nothing is left to chance).
In this particular case, if they had advance notice all is already set. In the extreme circumstance, that the chinese are doing it on their own and they got caught on the wrong side of the trade ... well, i love the term and excuse "market remain irrational longer than you can remain insolvent" ... you see is that Mr. Market animal which doesnt get it, even if you are right...
To summarize: Tails i win , Headsu lose.
or as they say on Wall Street... "Fuck you, Pay me!"
The accounting tricks will continue, until the ponzi banking system collapses.
Probably a fifth of China's "growth" thru money printing is sitting in RE in Australia, Canada and USA, esp Cali houses.
Doubleplus good.
+1 - But doubleplus ungood, too.
Now that China has stocked up on cheap oil and gold it's time to inflate to kingdom come. Hope no one here was short commodities over the break.
what do you mean? we got to dance as long as the music is playing ...
Bullish Boxing Day!
Merry Christmas to all my Zero Hedge friends!!!
LOL! You have no friends on Zero Hedge.
* Baltic state one of most vocal opponents of Russia
* Euro entry in Jan follows tough market reforms
* Population supports move to West, sceptical about euro
KYBARTAI, Lithuania, Dec 21 (Reuters) - Geopolitics plague Lithuanians at this frozen Russian border post, where a return trip by car can mean 48 hours of queuing. It is a reminder for some of why the former Soviet republic will cement its move to the West by joining the euro zone next month.
Tensions with Moscow have simmered ever since Lithuania became the first republic to declare independence from the Soviet Union in 1990, although only 6 percent of the population are Russian speakers, far fewer than in its Baltic neighbours.
On Jan. 1, it will be the last of the Baltic states to join the currency bloc, hoping like Estonia and Latvia for more investment and lower borrowing costs to spur one of Europe's poorest but fastest-growing economies.
All three have felt the blowback from East-West tension over Russia's encroachment into Ukraine this year in the form of Russian sanctions and military grandstanding on their borders.
When Lithuanian President Dalia Grybauskaite announced military aid for Ukraine last month, accusing Moscow of being a "terrorist country", Russia launched a go-slow on the border with its Kaliningrad enclave - home to Russia's Baltic sea fleet and, most Lithuanians suspect, tactical nuclear weapons.
The number of private Lithuanian cars crossing over plunged tenfold. "Before it only took a couple of hours," said unemployed Lionius Medelis, one of just three drivers huddled in the cold in the hope of buying cheap gasoline in Kaliningrad. "It's terrible what's happening here."
The move to the euro coincides with steps towards greater energy independence and requests for more NATO troops in Lithuania, marking a new shift away from Moscow. But half those polled in this state of three million do not welcome the euro.
"It is all a horror movie," elderly Laima Krecikiene said outside a supermarket by the border. "Don't you understand? Can you imagine how little money people in the villages have? Just look at the prices, they shot up in anticipation of the euro."
Market reforms and wider economic crisis have been tough for Lithuanians, driving many to emigrate. But few oppose its shift towards the West.
Russia's move into Ukraine has awoken fears the Baltics could be next. NATO has scrambled its jets over 150 times this year after Russian sorties, three times more than last year. Moscow held surprise military exercises in Kaliningrad in December with 9,000 troops and 55 ships.
Russian sanctions have hit Lithuania's transport sector, which employs around 100,000, as well as its dairy industry.
While the aim may be to bring the country back into Moscow's orbit, analysts say it is having the opposite effect, focusing business minds on the west and emerging markets like Asia.
"I think Russians are trying to educate us how to behave," said Gitanas Nauseda, chief economist as SEB bank in Lithuania. "But among executives the mentality of having Russia in your strategic plan is disappearing."
VOCAL
With Russia still accounting for some 20 percent of exports compared with 60 percent going elsewhere in the European Union, the government, which has been among the most vocal in Europe in denouncing Russia, says there is some way to go.
Prime Minister Algirdas Butkevicius said some businesses still did not appreciate the risks of dealing with Russia.
"It's better to work with less risky markets, make use of having a stable currency like the euro in Lithuania, have lower profits but long-term stability in business," he told Reuters.
A big step came in October when "Independence", a floating liquefied natural gas import terminal, arrived under heavy guard in Lithuania, marking the end of the Baltic state's reliance on Russian gas by allowing it to import from countries like Norway as well.
While a Russian crisis could upset forecasts, the central bank says euro zone membership could add 1.3 percent to GDP in the long term.
The economy is expected to grow 2.9 percent this year. Massive public spending cuts coupled with economic crisis saw Lithuanian GDP shrink by 15 percent in 2009, a drop that took until 2014 to recover. Around a tenth of the population has emigrated, half since the crisis.
Now Lithuania seems healthier than many EU economies, but central bank head Vitas Vasiliauskas said it could not relax. "The euro gives you a lot of opportunities. At the same time you must move forward with reforms," he said in an interview.
Deeper problems include creaking education and health systems and the brain drain, and even businesspeople are sceptical about the benefits of joining the euro.
Visvaldas Matijosaitis, CEO of Viciunai Group, producer of frozen products that exports to 56 countries and employs 7,500 people, complained of a shortage of skilled labour - his company is forced to bus in workers from 100 km (60 miles) away.
"Productivity is not what it is in the West," Matijosaitis said, as lines of women filleted fish by hand nearby. "A lot of investment would be needed to raise productivity."
Asked if the euro would help, he did not hesitate.
"It changes nothing," he said.
Maxim Zmeyev | Reuters
Russian President Vladimir Putin has scrapped New Year's holidays for government ministers because of the unfolding economic crisis.
Putin told a televised government session on Thursday that Cabinet ministers "cannot afford" to go on holiday.
Russian company employees throughout the country are entitled to holiday from Jan. 1 to Jan. 12 when Russians celebrate the New Year, the main holiday in Russia, as well as Orthodox Christmas on Jan. 7.
Russia's economy, battered by low oil prices and Western sanctions, is set to enter recession next year for the first time in six years, while the ruble is now worth less than half of its value.
Putin told Cabinet ministers on Thursday he expects them to keep the situation in check even during the holiday lull. He also reminded them that if they're thinking of suicide, they will need to put those plans on hold until after the crisis has been contained.
"Remember when fractional-reserve banking required that banks retain some of the deposits before they re-lend them out. Fun times." A 20% fractional reserve requirement for all bank deposits should be written into the constitution of every state (and feds should be banned from chartering banks or regulating them). When you let the politicians decide if the fraud money should keep flowing on their watch they will always blink and pass a bigger fraud onto the next guy's watch. Notice that fractional reserve banking itself it not the problem- it is the temptation to continually weaken the reserve requirements to prevent needed corrections.
U.S.A. States [8] that get it? Check em out: Texas (twofer), Wyoming, New Mexico, Alabama, Alaska, North Dakota, Louisiana, and West Virginia... needless to say, they'll all be hurting, but at least they've saved for this rainy day?
http://www.swfinstitute.org/fund-rankings/
http://www.swfinstitute.org/sovereignwealthmap.html
and this... "The Creature from Jekyll Island"* http://www.bigeye.com/griffin.htm [*scroll down a bit for read]
Merry Christmas ALL!
WASHINGTON, Dec 22 (Reuters) - Russia is starting to backslide on its commitments to become a fully-fledged member of the global economy and trading community, the United States' trade office said on Monday.
An annual scorecard of Russia's compliance with global trade rules said Moscow's actions over the last year had dented hopes the country would become a constructive member of the World Trade Organization, which it joined in 2012.
Relations between the United States and Russia are at their lowest since the Cold War because of Russia's annexation of Crimea from Ukraine last March and its support for pro-Russian rebels in eastern Ukraine, which prompted Western sanctions.
"Russia's use of unjustified and retaliatory trade measures against many of its neighbors, as well as against the United States, rejects the core principle of open trade based on the rule of law that sustains the WTO," the U.S. Trade Representative said in the report.
"In addition, many of Russia's protectionist tendencies appear to have gained momentum."
Russian Embassy officials in Washington were not immediately available to comment.
The USTR said it would not hesitate to take WTO action against Russia if warranted. So far, the only WTO cases against Russia have been brought by the European Union and Japan.
The office said the United States would continue to monitor Russia's administration of a one-year ban on some farm imports, which Russia says is based on national security concerns.
The report said tariff reductions, for example on pork and beef, meant U.S. exports to Russia had increased by 13.8 percent from 2013 to 2014. But it listed a range of ongoing concerns in the trade relationship, worth around $40 billion a year.
Russia might be using food safety regulations to restrict U.S. farm imports, and some technical barriers, such as taxes on cinema royalties, might discriminate against foreign providers, the USTR said.
It also flagged concern about enforcing intellectual property rights, especially on-line piracy and sales of counterfeit goods, pointing to unlicensed streaming services, pay-per-download websites and videogame hacking sites.
"Information currently available suggests that overall enforcement of IPR has decreased, rather than increased, in the past two years," the USTR said.
It's so rich when US officials talk about "rule of law"
Lawless fuckers can eat a bag of dicks
Off topic, but ... Ohio sucks.
Some lie about inflation better than others.
Some have economies simply "less prone" to inflation.
In the end all everyone is doing is just printing money to keep interest rates at or near zero. Everything else is just paying into the system.
That would be a system of debt not money.
For the Tylers' Christmas gift, I clicked on 4 pop-ups this morning!
Merry Christmas, all!!
That's called a guilty conscience(!)
"...in an effort to shore up the world's second-largest economy"
Only last week I read that China was now the largest economy.
Which is it?
In absolute terms the US is still the biggest. In PPP terms, China is now the largest.
China joins the other world economies in full on retard
Kinda makes you wonder just how much on Russia's side China is when China apes western banking practices doesn't it?
The wealth left in the world is real physical gold, silver, lead, brass, steel, beans, rice, water, & health.
The rest is all psyops & propaganda, which is working real good.
Easy button.
Why bother with real economy.
A reflection of the capital leaving China to go elsewhere (export of capital). Places their banking system at more risk if economy declines with lower reserves. Same thing as you see here. The gov't/taxpyer will cover the shortfall. In the meantime, the clowns who run the show(s) siphon off bonuses.
"And now we await the ECB to go full blown QE in the next few months, in preparation for the Fed to finally hike rates some time in 2015. And the simple reason why every single other central bank is doing everything it can to offset the removal of easy financial conditions by the Fed is because nobody has any idea, or even remembers, what a tightening cycle by the Federal Reserve looks like, or what it will do to global risk assets."
What is the remedial translation of this...? Seems the 'meme' of 'Fed tightening' as-writ-in-stone, is once again being proffered as an 'absolute'.
The end of QEx caused mass amounts of dollars exited developing countries, thus caused capital vacuum in those countries. Japan and China quickly fill in the vacuum and prevent 'Strong Dollar' purchases their assets later, at deep discounts. From this angle, their easings are smart move, they know exact what fedrex wants to do.
Everyone's got a printing press. Soon negative rates for all! Merrry Christmas Krugman.
Let's check the scoreboards now that it's year end:
Central banks 10000
ZH 0
Central Banks 0 (economies not only still fucked but a thousand time more fucked than ever...ie total failure)
ZH 1,000,000 (pointing out Central Banks totally fucking everything up to the power of n.)
Late at night, at the end of ZH threads...the government trolls come out to fill the last bunch of posts with TPTB B/S
The US working on the principle...if I owe somebody a $100 its my problem, but when I owe them 1 quadrillion quadrillion quadrillion dolars...its their problem.
Hard to not think that this is all going to end in some future decade with nukes being detonated over the Whitehouse and Kremlin....and sundry capitals .... making a pig breakfast of Russia, USA and much of Europe. Meanwhile Asia laughing its arse off as the USA takes the West down the path of slef immolation for the sake of a handful of Oligarchs.
And I can bet..the future of the Middle East and Israel after the demise of the US will be much different.
by fed.'s standards, china could print 4 times as much fiat, they have 4 times as many endentured servants, (slaves), BIS assets.
Infinite rehypothecation?