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China Easing to Combat The 'Darkest Period' of 2015
By EconMatters
April 18, 2015
PBOC Easing
China is now firmly in stimulus mode when PBOC announced on Sunday to cut the reserve-requirement ratio by 1% to 18.5% effective April 20. This is the second reduction this year and the largest since November 2008 during the global financial crisis. The reserve-requirement ratio represents the minimum fraction of customer deposits and notes that each commercial bank must hold as reserves in cash.
The new 18.5% ratio required by China is still higher than the typical global standard and than the current 10% cap by the U.S. Federal Reserve. The PBOC also announced an additional 100 bps cut for rural credit cooperatives and village banks, as well as a 200 basis point cut for the China Agricultural Development Bank.
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Graphic Source: WSJ, Feb. 2015 |
1Q15 The 'Darkest Period'
Bloomberg quoted Larry Hu, head of China economics at Macquarie in Hong Kong calling 1Q15 the “darkest period” this year for China's economy. GDP was 7% in Q1, the slowest since 2009, while industrial production in March rose at the slowest rate since November 2008, and inflation turned negative for the first time since 2009. (Read: Bloomberg Analyst Returned From China 'Terrified for the Economy')
Hu now expects further easing with an interest-rate cut within a month (PBOC has already cut interest rates twice since November), increasing infrastructure spending and a relaxation of home-purchasing rules.
My contacts in China and Hong Kong indicated that the new crackdown by Xi on corruption and state largess has put a fairly large portion of the nation's businesses (in mainland and Hong Kong) once catering to the 'elite' rich class in China out of commission. This is one of the major contributing factors to the nation's slowing growth.
$100 Billion Liqudity
WSJ estimated that the reduction in bank reserve-requirement-ratio could freed up more than $100 billion for China's banks to lend. This suggests increasing liquidity compounding the social economic issue of wealth gap (which should be Beijing's primary concern), similar to the 3 QE programs by the U.S. Fed.
Shanghai Composite Index
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Chart Source: Yahoo Finance |
A Desperate Move
This latest move seems a pretty desperate quick fix to the pessimistic market sentiment as it came just 2 days after China relaxed the short-selling rules leading to its stock-index futures crashed almost 7% when many retail brokerage accounts of Chinese mom-and-pops rushing for the exit (5.75 million new broker accounts were opened by retail investors in Shanghai and Shenzhen during the month of March). This is a firm indication of serious structural problems within China's economic and financial system.
Economists think this decision could be a prelude to more easing measures to counter further slowdown in growth this year, which could only lead to a bigger bubble, and a more disastrous crash somewhere down the road.
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Another alarmist article that makes very little sense considering China's economic situation vs almost all developed nations, particularly the US.
The 10% RRR of the Federal Reserve has long lost any meaning in the US. By 2000 already, well over 70% of US commercial banks were not bound in any manner at all by this 10% RRR and I imagine it's even a higher percentage today. A regulation that is not enforced at over 70% of commercial banks is a meaningless regulation. (Source - Board of Governors of the US Federal Reserve and https://smartknowledgeu.com/blog/2008/12/an-exploration-of-madoff%E2%80%...)
could it be that China with all its new deals that they would need to increase the size of the fiat pool to accommodate this expansion as well as to fix its shadow banking legacy. I dun seem to hear anything regarding this and from what I'm reading and many ZHers are aware of, I believe its alot more complex than the regular cover stories. emmmmmm......DESPERATE MOVE......If they were desperate they could just dump more UST (not that they are not doing it stealthly already).
Indeed, if China's yuan is to become a global reserve then they must spread it around more and more is needed to be spread. Each into the other so to speak. I don't know if this is the case but it certainly seems logical.
WTF is going on at Walmart? “There Are No Stores in Denver Metro Open Past Midnight” – Employees
keep stacking the yellow relic me harty's
We are gettitng closer to the epoch that will be know as 'The eating of grass and bark'
Squid is very tasty as Sushi, Sashimi or Tempura.
Rice ,Ginger and Wasabi round it out.
So I shouldn't be trading worthless fiat US dollars for worthless fiat chinese yuan?
De Militaire Inlichtingen- en Veiligheidsdienst (MIVD) blijft zwijgen over zijn rol in de 3e SpinozaGolf.
http://www.trouw.nl/tr/nl/4496/Buitenland/article/detail/3969780/2015/04...
In de nieuwste analyse van de @*IVD zullen de internationale machtsverhoudingen gigantisch veranderen met het uitrollen van de 'Logica van de 1'. De Amerikaanse haviken zijn op de hoogte dat netwerk @MinPres via LinkeNout ook China heeft geïnformeerd ...
http://www.ftm.nl/column/wellink-achteraf-held/#comment-1082830766
... dat er politici zijn die zijn ingewijd in de 'Logica van de 1'. Netwerk @SuperWil omvat overigens ook leden van MC's. Al gaat het gerucht dat deze criteria (Good-fellas = CP_*IVD, Animals = CP_PvdD & BlackSheep = @CP_sME) inmiddels zijn veranderd.
http://nos.nl/artikel/2031453-griekenland-schraapt-reserves-bijeen.html
Syriza zou namelijk ook onderdeel zijn geworden van netwerk @SuperWil. Deze politieke partij heeft de verkiezingen gewonnen met de belofte dat ze een eind zouden maken aan het SCHULD=H00P-principe.
Right, JuusjA, thats what they all say!