Chinese central bank attempts to cool market
People's Bank of China draws liquidity out of market to curb credit boom
5:38PM GMT 18 Feb 2014
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China's central bank has moved to cool the country’s boom in lending by withdrawing Rmb48bn (£4.7bn) from the money markets.
The People’s Bank of China (PBOC) issued 14-day so-called repurchase agreements, or repos, to drain liquidity from the financial system.
The move marked the first time in eight months that the Chinese authorities have stepped in using repos to cool the market.
“Today’s move showed the PBOC may be referring to an interest rate corridor in implementing its 'prudent’ policy’,” said Wang Ming, at Shanghai Yaozhi Asset Management in comments to Bloomberg.
The action shows the intention of the Chinese authorities to maintain local market rates in a range of about 4pc to 8pc, according to Mr Wang.
Last week, PBOC figures revealed that lending by Chinese banks had hit a four-year high, while non-performing loans have hit a close to six-year high.
Chinese domestic lending tripled month-on-month in January to Rmb1.3 trillion, the highest monthly level since Juanry 2010.
The expansion in lending has led to fears over the extent of the credit bubble built up in the world’s second largest economy since the financial crisis in 2008.
Analysts have pointed to growing risk over the repayment of local debt with Rmb3.5 trillion needing to be paid back or refinanced this year, according to Credit Suisse.
“There is an evergreening process going on here whereby ever higher levels of loans need to be made to maintain the status quo,” said one market analyst.
Aside from the official banking system, China’s shadow banking sector has become the cause of rising concerns given its importance in providing credit to increasingly desperate borrowers shut out of the official industry.
About half of all new credit is estimated to come from trust companies and wealth management products that in many cases represent repackaged loans originated by the mainstream banks.