Is China’s push to deleverage its financial system over?
That is the question following last night’s dramatic reversal in recent PBOC liquidity moves, when after weeks of mostly draining liquidity, the central bank injected a whopping 170 billion yuan (net of maturities), or $24.7 billion, the biggest one-day cash injection into the country’s financial markets (and contracting shadow banking system as first reported here last week, when we showed the first drop in China Entrusted Loans in a decade) in four months. The surprising move was “a fresh sign that Beijing is trying to mitigate the damage to investor confidence inflicted by its recent campaign to tamp down speculation fueled by excessive borrowing” according to the WSJ.
Today’s injection was the the largest since just before the Lunar New Year holiday in January, when Chinese banks traditionally stock up on liquidity.
On one hand it is possible that the PBOC is simple concerned about the sharp decline, and in fact contraction, in China’s shadow banking system, where as we showed last week Entrusted Loans posted their first decline since 2007 even as China’s M2 continued to decline.
This post was published at Zero Hedge on May 16, 2017.