If one wants to know how bad the health of China’s economy is, look
no farther than the People’s Bank of China’s composure: it seems rather
frustrated and aggressive of late. On 5 July, the central bank cut
benchmark interest rates for the second time in less than a month.
Likewise, since December 2011, there have been three successive cuts in
the reserve requirement ratio (RRR). Additionally, in recent weeks, the
PBOC made its biggest injection of funds into the money market in nearly
six months.
Yet, whatever the PBoC’s aims, it is merely administering a monetary band aid for the bleeding economy. It cannot fix it. The central bank’s aggressive pro-liquidity manoeuvres at best serve to sustain the overleveraged economy and avoid the systematic short-circuit of debt financing.
The main drivers of China’s debt financing, China’s state-owned banks, are starved for cash. The lending binge encouraged by the central government, the increasingly rigorous requirement of regulatory capital and excruciating continuance of excessive dividend payouts have rendered Chinese banks – the world’s most profitable banks – in a precarious position.
Read more: http://www.firstpost.com/economy/chinas-end-game-dark-side-of-a-great-deleveraging-384921.html
Yet, whatever the PBoC’s aims, it is merely administering a monetary band aid for the bleeding economy. It cannot fix it. The central bank’s aggressive pro-liquidity manoeuvres at best serve to sustain the overleveraged economy and avoid the systematic short-circuit of debt financing.
The main drivers of China’s debt financing, China’s state-owned banks, are starved for cash. The lending binge encouraged by the central government, the increasingly rigorous requirement of regulatory capital and excruciating continuance of excessive dividend payouts have rendered Chinese banks – the world’s most profitable banks – in a precarious position.
Read more: http://www.firstpost.com/economy/chinas-end-game-dark-side-of-a-great-deleveraging-384921.html
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