SHIBOR Drops After Chinese "QE"; Downward Pressure on the Economy

SHIBOR spiked higher, so the central bank poured liquidity into the market.

On Friday, I also pasted this chart:

It shows the searches for the term "cash crunch." Now: China "Fixes" Liquidity Crisis By Banning Media Use Of Words "Cash Crunch"
As The FT reports, Chinese propaganda officials have ordered financial journalists and some media outlets to tone down their coverage of a liquidity crunch in the interbank market, in a sign of how worried Beijing is that the turmoil will continue. The censors have warned reporters not to "hype" the multiple-sigma spikes in overnight-funding rates and have forbidden the press from using the Chinese words for "cash crunch."

Story is here: China pressures media on cash crunch story
Chinese propaganda officials have ordered journalists and media outlets to tone down their coverage of a liquidity crunch in the interbank market, in a sign of how worried Beijing is that the turmoil will continue when markets reopen on Monday.
As the table on top shows, the turmoil continued.

China Money Market Rates Fall After PBOC Cash Injection
Borrowing costs in China's money market fell sharply early Monday after the country's central bank announced late Friday that it had injected over 300 billion yuan ($49.2 billion) into the financial system over a three-day period as interbank rates surged to their highest levels since June.

The seven-day repurchase agreement rate, a benchmark measure of the cost that banks charge each other for short-term loans, opened trading at 5.57%, down from 8.20% Friday, which was the highest since China suffered an unprecedented cash crunch in June.

The People's Bank of China said on its official Twitter-like Weibo account on Friday that the banking system had current excess reserves of over CNY1.5 trillion and it called that level "relatively high."
China dumped the equivalent of $100 billion U.S. (comparing GDP, by the size of the financial system, much more) into the financial system over the past three days. The Fed is buying $75 billion a month.

Here are some Chinese articles: This one is about the Chinese central bank rescuing the market Shibor持续攀升 央行向市场注水3000亿救急

This one should be familiar to Americans and Europeans: It's about how the banks were saved, but the companies suffered during the June cash crunch. “钱荒”第二季的温州表情:银行轻松 企业煎熬

This piece covers a report from CITIC Securities, about "downward pressure" on the economy: 中信证券策略周报:钱荒阴霾难散 积极布局大消费

Here's a bit of Google translated excerpts:
Investment advice: hard money shortage haze dispersed, multi-factor repression under the interim weak die hard. Although the money shortage is the main cause of last week's stock market decline, but not the only factor in the weeks before the stock market weakness. Downward pressure on the economy looming, the reforms are expected to fall after the peak, and is now hidden when the debt risk, which is also an important reason for the past two weeks the stock market decline. The second round of money shortage impact on the market less than June's first round of money shortage, but its duration will be longer, but in late December liquidity tight pattern remained significant; SLO and the central bank's reverse repo position, future market Even short-term oversold bounce is still hard to change mid-disadvantaged.

This article (岁末钱荒再袭蓉城 房贷“吃紧”购房者慌) discusses how some banks have stopped issuing mortgages (some banks stopped much earlier this month) and this has unnerved home buyers.

On the bright side of this as of yet mini-crisis, much of the general discussion is about how China will allow market forces to set interest rates. Unlike in the West, China's financial crises lead to greater economic freedom, not less. In the long-run, that's very positive. In the short-run, there's a major credit bubble. There is not a liquidity shortage anymore than there was in the United States in 2008. There is a solvency crisis in China and pain will come in great quantities in a short amount of time, or by a thousand cuts over many years.

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