Chinese Economy Slowing, RE Investment Down, RRR Cut Incoming

China didn't do a big stimulus program in 2020. As a result, it's economy sank back to the post-2008 slowdown trend. With the slowdown is accelerating, the government is cutting the reserve requirement ratio.

Reuters: China's cabinet says it will use RRR cuts to support real economy

China will use timely cuts in the bank reserve requirement ratio (RRR) to support the real economy, especially small firms, the cabinet said on Wednesday.

The People's Bank of China (PBOC) has been gradually scaling back pandemic-driven stimulus to curb debt risks, keeping borrowing costs low and telling banks to maintain support for small firms.

China will "use monetary policy tools, including RRR cuts, in a timely way to further step up financial support for the real economy, especially small firms", the cabinet said in a statement after a regular meeting.

China will lower financing costs for small companies to help them cope with rising commodity prices, the cabinet said.

The country will keep monetary policy stable while increasing policy effectiveness, but will not resort to "flood-like" stimulus, it added.

iFeng: 要降准了！何时降？如何解读？本周五傍晚或是重要观察窗口

1. In view of the impact of the rise in commodity prices on the production and operation of enterprises, it is necessary to maintain the stability and effectiveness of the monetary policy on the basis of not engaging in flood irrigation.

2. Use monetary policy tools such as RRR cuts in a timely manner to further strengthen financial support for the real economy, especially small, medium and micro enterprises, and promote a steady and slight decrease in comprehensive financing costs.

3. Promote green and low-carbon development, set up monetary policy tools to support carbon emission reduction, support the development of clean energy, energy conservation and environmental protection, and carbon emission reduction technologies in a steady, orderly, precise and direct manner, and leverage more social funds to promote carbon reduction row.

4. On the basis of the pilot program, in July this year, the national carbon emission trading market for the power generation industry will be launched for online trading.

5. Steadily expand the coverage of the industry, and use market mechanisms to control and reduce greenhouse gas emissions.

This is weak sauce. They're not going to do anything to support the economy and their green policies if actually followed. The likelihood of follow through is zero percent though, but they will celebrate how a recession reduces carbon emissions.

As for the RRR, it was already cut three times this year and it achieved nothing:

In January, the deposit reserve ratio of financial institutions was reduced by 0.5 percentage points (excluding finance companies, financial leasing companies and auto finance companies).

In March, we implemented a targeted RRR cut for inclusive finance, and granted a 0.5 or 1.5 percentage point preferential deposit reserve ratio for banks that meet the criteria for the assessment of the proportion of loans in the inclusive finance sector, and received a 0.5 percentage point preferential deposit reserve ratio during the assessment. Of joint-stock commercial banks have cut their RRR by an additional 1 percentage point.

In April, the deposit reserve ratio of rural credit cooperatives, rural commercial banks, rural cooperative banks, rural banks, and urban commercial banks operating only in the provincial administrative area was reduced by 1 percentage point, divided into April 15 and May 15 Implemented twice.

China's running low on dollars:

First, from the perspective of base currency injection, in the past, foreign exchange funds were the main channel for base currency injection. In recent years, the scale of foreign exchange funds has generally remained stable. Therefore, the central bank supplements base currency injection and supplement liquidity mainly through MLF ( Medium-term borrowing convenience) plus open market operations.

As I've noted in the less frequent monthly updates on reserves and money supply, what's notable about the past year is that China's FX reserves didn't see a wave of dollar inflows. Reserves have been stable when, given what we know about exports, U.S. monetary stimulus and the past decade, there should have been a big increase. This leaves open the possibility that flows aren't what they used to be and that a reversal in the global economy and FX markets could put outflow pressure back on.

Meanwhile, real estate is rapidly slowing. Yuan Talks: Chinese property developers’ first-half financing hit lowest since 2018 amid the sector’s deleveraging

China's top 100 property developers raised a total of 609 billion yuan in funding in the first half of this year, sliding 34 per cent from the same period last year and down 29 per cent from the previous six-month period, according to a report from the China Real Estate Information Corporation (CRIC), a real estate consultancy. The figure marks the lowest half-year level since 2018.

Bloomberg: Chinese Developer Woes Are Weighing on Asia’s Junk Bond Market

Financial strains among Chinese property developers are hurting the Asian high-yield debt market, where the companies account for a large chunk of bond sales.

That’s widening a gulf with the region’s investment-grade securities, which have been doing well amid continued stimulus support.

Yields for Asia’s speculative-grade dollar bonds rose 41 basis points in the second quarter, according to a Bloomberg Barclays index, versus a 5 basis-point decline for investment-grade debt. They’ve increased for six straight weeks, the longest stretch since 2018, driven by a roughly 150 basis-point increase for Chinese notes.