Charting China's 'Monetary Policy' Impotence

Tyler Durden's picture

Iron Ore inventories to the roof; steel production still ramping; food and energy prices soaring; economy deteriorating rapidly. So why no major stimulus from the PBoC? Too busy in-fighting or perhaps waiting on The Fed or The ECB to rescue us all; we suspect neither of the above. This chart, via Goldman Sachs, indicates the relative looseness of financial conditions (easing / tightening) compared to China's current activity. These two proprietary indicators provide a 'cleaner' view of the various aspects of China's monetary/fiscal policies (from fiscal stimulus to RRR hikes or reverse repos) and its 'real' level of economic growth (unbiased by political need). As is extremely evident, since the initial collapse and huge stimulus in 2008/09, the PBoC has become less and less capable of generating any additional economic activity. Whether this is due to the same shadow-banking effect Europe and the US suffer from in their transmission channels; or more simply that the Chinese may have also hit their bubble-created balance-sheet-recession debt-minimization limit (no matter how mandated from the top-down that spending is).

Goldman Sachs' China Financial Conditions Index vs. China Current Activity Index...


One lesson seems clear - as the impact of easing was also failing into the crash of 08/09 - for China, it's go big or go home as nuanced management of liquidity is just not cutting it (and never did); and we remind readers that 'going big' is very unlikely given the already-inflationary environment and bubbly real estate market they find themselves lumbered (pun intended) with.


Source: Goldman Sachs

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Ahmeexnal's picture

Add to that the fact that flied lice prices are set to triple and you have a problem in your hands.

AldousHuxley's picture

that's why chinese elites build toxic manufacturing to with timebomb to kill people with pollution in 20 years right after they become too old for manufacturing jobs.





Zeilschip's picture

Flied lice, you're funny.

Surrealist's picture
China Manufacturing Contracts for First Time in Nine Months - Official Survey!

The Purchasing Managers Index fell to 49.2 in August from 50.1 in July,

Hype Alert's picture

At some point this news will not be bullish.  Reality will hit hard.

Davalicious's picture

But the good news is my gold & silver are doing great. remind me how i eat those again?

Winston of Oceania's picture

So what will you eat? Because whatever you have will be taken away by the angry sheeple and you'll likey be shot trying to steal some once you realize you are one of them... If a man is wise enough to buy gold/silver he is also wise enough to buy some lead along with a delivery system to protect his food and PM's.

hannah's picture you are saying that i will be shot stealing food so i need to get a gun to kill people and then steal their food...?

akak's picture

No, he is saying that YOU are going to be food --- if not literally of the zombie mobs, then figuratively of the government (which in fact you, and we, are all already).

A Lunatic's picture

Globalism. With fucked fucked here and a fucked fuck there, here you're fucked, there you're fucked, everybody everywhere is fucked .............

AldousHuxley's picture

not only is everyone fucked everywhere, they are fucked at the same damn time.



oh_bama's picture

You guys had been bashing China in 2009. At that time all of sudden they printed a few trillion RMB all problem SOLVED!!

Now for all those smarties, let me warn you, they could print another few trillions starting with a T then your short position could be F**KED. So don't get excited, just relax and BTFD!!

ekm's picture

Let me explain you what STIMULUS or PRINTING means in reality, in China (no different in any totalitarian country on the planet).

Chen, Gu, Bo, Yian are elite. They get together for a meeting.

- Life sucks. It's boring. We are not making any money. What's the good use of having a Politburo?

- Then Chen says: I have an idea. Let's build a train rail to the village X. There are only 2000 people in the village, nobody will ever use the rail, but who cares.

- They all agree and get to talk to their connections to Politburo.

- Politburo agrees at a cut of 5% of the whole project.

- Since Yian is a bank president, he makes a 300 million dollar (let's talk dollars, no rmb for easiness of understanding) loan to Chen who has a building company, 200 million dollar loan to Gu who has a heavy machinery company, 300 million dollars to Bo who has a commodities company, total 1 billion dollars.


- Project is built. Workers are paid just $300/month. Nobody uses it. Rails are getting cracked since nobody cared to manufacture them properly. Money is in Switzerland.


So the whole point of Stimulus or Money Printing is to CREATE MONEY AT THE SOLE GOAL OF ENDING IN THE ELITE'S POCKETS, THAT'S IT.


What is the difference between:

- Printing the money and giving them to workers without doing any work, $300/month

- Doing stimulus and have the workers work for $300/month temporarily.

The answer is nothing. The business created is useless. Do you understand why STIMULUS is inflationary in China?



US Gov/Fed doing cocainated easing is no different?

Money is printed (or bond buying) at the only goal of providing Primary Dealers with money so the Primary Dealers can meet their margin calls. Money ends up in the hands of the Winning End Users of CDS swaps that have Primary Dealers and Losing parties.

Winning parties use part of this money to buy and store commodities, mainly crude oil. Do you understand why cocainated easings do only harm?


AldousHuxley's picture

dont' forget drones.....drone can install fear in hungry populations.

mac768's picture

.. no wonder that the revenue of casinos in Macau has overtaken Las Vegas around fourfould now, but the millions created out of thin air need to go somewhere

ekm's picture

...and of course nobody cares about the so called "NON PERFORMING LOANS" since they were never intended to be performing ones anyway.

The gov will simple bailout the banks. Does it sound familiar?


It can continue like this until everything is overproduced, like cars, condos, houses, plastics and then it all this has to be thrown into the market hence deflation (sounds familiar?). In essence, there is no difference between what's happening in USA + Europe as opposed to what's happening in China.

New money created to bailout these banks goes to life basics commodities like Crude Oil and Food hence creating inflation there, but becoming hyperinflation for the poorest.

kito's picture

Wow, the chinese might actually recognize the folly of the western fiscal promiscuity?????? they might realize they have a chance to have their currency front and center on the global trade stage???? Hard to believe, they might actually want to cool off their economy!!!!!!!!

Schmuck Raker's picture


Kito, is your sole motivation for commenting here on ZH to contradict any and all posts critical of China?

Zeilschip's picture

Stop whinging. And stop using bold italic fonts. Fact is 99% of the ZH posters know a lott less about China than about e.g. the US. Maybe he's right, maybe he's trolling. How do YOU know.

kito's picture

Thank you zeilschip....its refreshing to hear somebody defend the right to offer a different opinion here on zh, however ignorant you may think it is....... We certainly dont want to fall victim to lemming like group think.....for that would put us at the level of the investment bank analyst community....

Schmuck Raker's picture

"How do YOU know."

I don't. So I asked.

If that qualifies as whinging, so be it.

kito's picture

yes, I am a chinese double secret agent whose mission is to infiltrate zh and win the hearts and minds of those who rail against my communist brothers........or just a simple guy speaking my mind even it runs contrary to most of tylers china posts......i dont defend the chinese system, but they are much better positioned to weather the coming storm......

gnomon's picture

"better positioned"!!

Chinese society is corrupt from top to bottom, and corruption, (inward and outward), is at the heart of our problem.  

In the United States there are at least 30 million or so citizens who are far from corrupt, (exactly the opposite), and we could build back from this disaster given half a chance.  

In China they would not know where to begin because they have been traumatized and killed for centuries and have no history of stable democratic institutions.  Top down is all they have ever known.  

Seek Liberty and the source of it, (which is the honoring of property rights), and things will turn around for any society that seeks and honors those things.

Yes, our chances are nil for avoiding total disaster, but China's chances are less than nil.  And we have water, fertile land, fossil energy reserves that far exceed our needs, (not our wants).  China is a burnt out hulk in comparison.  They will need to expand militarily to make it.

hannah's picture

gnomon - you reallllly need to read chinese history. their society has collapse to dirt a hundred times. why do you think they have such high savings rates? the chinese know how to survive. unlike americans, many many chinese alive today have actually lived thru a collapse.

we outsourced our food and manufacturing to china. they didnt outsource theirs to america. i think america is the one that is going to have a hard road to walk when TSHTF.....

Schmuck Raker's picture

More likely, just a salesman talking his book.

Not that there's anything wrong with that...


"...they are much better positioned to weather the coming storm......"

How are they sitting for arable land? Water?

They have gold. And they're using it to buy up Africa. But I wonder how well that will work out in the long run. From a strategic standpoint, the US does have a rather bloated military at the moment. Do you suppose if the SHTF Africa might get a little further away from China, logistically speaking, when they need it most.

Unemployment in the US is at least 8%, and noone seems highly motivated to do much about it, especially the unemployed. What do you suppose might happen if China reached 8% unemployment.

China's in a much better position to address their energy needs as hydrocarbon prices rise/supplies diminish. They are already looking at Thorium, and have plenty of solar/wind manufacturing capacity. But who seriously has any faith in the quality/durability of their products.

You can claim to be "a simple guy" speaking his mind. But you come off as a broken-record nay-sayer, rather than someone wanting to offer intelligent counter-arguments to advance the discussion.


Frankly, it's a shame you're not a Chinese double agent.

All they have is AnAnomous, and you'd be an improvement.....Say - you're not from the US I hope?

groundedkiwi's picture

That ties in with the one child policy. Maybe they do plan for decades ahead.

are we there yet's picture

Short term the Chinese economy is unstable but long term the leadership is aquiring gold to become an alternate reserve currency in the far east. They set a not so hidden floor for gold as they use excess US fiat to build gold reserves in preparation for this long term goal.

JackT's picture

Is there enough gold to cover the evaporation?

Schmuck Raker's picture


For the sake of the average man in the street I hope none of the "Leaders" have relied on boats to transport that gold to safe havens. Water-borne craft have been highly prone to unexpected submersion when carrying bullion, lately......I hear.

malikai's picture

I hear that's only a problem on lakes and rivers stateside. I'd love to see a study on this phenomenon, it would be highly enlightening, methinks.

Element's picture

"Evidence suggests that centralized manipulation of money and credit has a destabilizing influence on the economy overall - it increases economic volatility - and has unintended consequences totally outside the control of so-called monetary authorities." - Marc Faber

Surrealist's picture
China Manufacturing Contracts for First Time in Nine Months - Official Survey!

The Purchasing Managers Index fell to 49.2 in August from 50.1 in July,

Richard Chesler's picture

I do all my investing based on GS analysis.

My name's Stanley Johnson.

Zero Govt's picture

chuckle ;)

that's the 'lifestyle' Washington and Wall Street have been promoting for 30 years. Dunno about systemic risk but when recession hits the 'House (of cards) that Jack Built' comes a tumbling down faster than you can say, "buried in un-repayable debt"

when's Lloyd Blankfeins promised PR Tour begin, the one explaining how "productive" bwankers are in the community?

deez nutz's picture

I love this thread. It proves, to me at least, that when the SHTF in the U.S. the media will begin showing countless reports on the horrors in China - "sheeple distraction".   

Then one day on CNBC some guest will say "you know, say what you will about China but THEY DO HAVE OUR MANUFACTURING JOBS!!!"  and they will quickly cut to a commercial so the guest can be ushered off set. 


fonzannoon's picture

nutz all of that already happens and that guys name is Schiff.

kito's picture

Fonz, you are posting at 6am on a saturday morning labor day weekend? you need to reign in that 2 year old............

akak's picture

Impotence of Chinamen monetary policy easy cured, just need for consumptionize more tiger penis, bear gall bladder, dragon bone powder and human fetus broth. 
Make big big central bankster strongism, much yum yum additionalwise.

falak pema's picture

China does not know how to scam with fiat money; apart from currency manipulation, but no good in derivative shadow banking to pollute the world by HFT manipulations. 

So China tries with P metals and RM, to convert its surpluses into hoarded hard commodities; what the first world does with inflated fiat to dilute its debt in the scam derivative game. Game of monkeys who don't talk the same language and will one day have to split the banana peel once the banana has disappeared into thin air. 

No bananas today! Is a song which now has an ominous ring! 

It wasn't supposed to be in that film Sabrina. It was more a fun game. 

Maybe Clint E would know how to explain that, seeing he is from Tinsel town and knows how to talk to empty chairs!