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Chinese stimulus; $500 billion yuan pumped in
Topic Started: 18 Sep 2014, 01:00 AM (606 Views)
Ex BP Golly
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http://m.theaustralian.com.au/business/economics/china-injects-90bn-into-banks/story-e6frg926-1227061178023

CHINA’S central bank is injecting 500 billion yuan ($90 billion) into the country’s five major state-owned banks as it moves to counter a worse-than-expected slowdown in the world’s No. 2 economy, according to a senior Chinese banking executive.
The move follows a raft of disappointing economic data in August that show China’s economy is worsening rapidly despite targeted easing and other stimulus measures taken by Beijing early this year.

“We expect Beijing to introduce a slew of other easing and stimulus measures in coming weeks to re-boost confidence and restabilise growth, but the chance of universal rate cuts gets smaller,” analysts at Bank of America Merrill Lynch said in a research note. “We expect short term rates and longer term yield to fall, the economy to benefit, and markets to respond positively to this injection.”

The size of the injection, which will be in the form of a three-month, low-interest-rate loan to the banks, is similar to a 0.5-percentage-point cut in the amount of reserves China’s commercial banks set aside with the People’s Bank of China......

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Veritas
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Ex BP Golly
18 Sep 2014, 01:00 AM
http://m.theaustralian.com.au/business/economics/china-injects-90bn-into-banks/story-e6frg926-1227061178023

CHINA’S central bank is injecting 500 billion yuan ($90 billion) into the country’s five major state-owned banks as it moves to counter a worse-than-expected slowdown in the world’s No. 2 economy, according to a senior Chinese banking executive.
The move follows a raft of disappointing economic data in August that show China’s economy is worsening rapidly despite targeted easing and other stimulus measures taken by Beijing early this year.

“We expect Beijing to introduce a slew of other easing and stimulus measures in coming weeks to re-boost confidence and restabilise growth, but the chance of universal rate cuts gets smaller,” analysts at Bank of America Merrill Lynch said in a research note. “We expect short term rates and longer term yield to fall, the economy to benefit, and markets to respond positively to this injection.”

The size of the injection, which will be in the form of a three-month, low-interest-rate loan to the banks, is similar to a 0.5-percentage-point cut in the amount of reserves China’s commercial banks set aside with the People’s Bank of China......

Cool.

Another mining boom.

Crisis averted.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Mike
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Veritas
18 Sep 2014, 01:26 AM
Cool.

Another mining boom.

Crisis averted.
Do you expect China to do nothing as its economy slows to below the level the Government wants.

I don't see it leading to another mining boom, we have more then enough supply of resources, what it will do is put a floor under resource prices.
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Mike
18 Sep 2014, 02:04 AM
Do you expect China to do nothing as its economy slows to below the level the Government wants.

I don't see it leading to another mining boom, we have more then enough supply of resources, what it will do is put a floor under resource prices.
Do you expect them to build another 50 airports in one year?

Common sense suggests that there are only so many times you can launch the largest stimulus package in history.

And why would the chinese want to put a floor under the iron ore price Mike?

Generally, buyers like when prices fall.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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miw
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Ex BP Golly
18 Sep 2014, 01:00 AM
http://m.theaustralian.com.au/business/economics/china-injects-90bn-into-banks/story-e6frg926-1227061178023

CHINA’S central bank is injecting 500 billion yuan ($90 billion) into the country’s five major state-owned banks as it moves to counter a worse-than-expected slowdown in the world’s No. 2 economy, according to a senior Chinese banking executive.
The move follows a raft of disappointing economic data in August that show China’s economy is worsening rapidly despite targeted easing and other stimulus measures taken by Beijing early this year.

“We expect Beijing to introduce a slew of other easing and stimulus measures in coming weeks to re-boost confidence and restabilise growth, but the chance of universal rate cuts gets smaller,” analysts at Bank of America Merrill Lynch said in a research note. “We expect short term rates and longer term yield to fall, the economy to benefit, and markets to respond positively to this injection.”

The size of the injection, which will be in the form of a three-month, low-interest-rate loan to the banks, is similar to a 0.5-percentage-point cut in the amount of reserves China’s commercial banks set aside with the People’s Bank of China......

The PBOC conducts open market operations twice a week. 500B is a big one, but far from unusual. For example, they pulled out 450B on one day in feb.

This is not really stimulus. It's just adjusting liquidity. Nobody can actually spend that money. Banks can just lend it to each other. Maybe they think things might get tight around the 7-day holiday coming up at the end of the month and are letting out some slack.

The most interesting thing is that this particular open market operation got such a big fanfare in the press. It's everywhere you look. Why? Usually this shit is page 73 stuff.
The truth will set you free. But first, it will piss you off.
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newjez
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miw
18 Sep 2014, 02:22 AM
The PBOC conducts open market operations twice a week. 500B is a big one, but far from unusual. For example, they pulled out 450B on one day in feb.

This is not really stimulus. It's just adjusting liquidity. Nobody can actually spend that money. Banks can just lend it to each other. Maybe they think things might get tight around the 7-day holiday coming up at the end of the month and are letting out some slack.

The most interesting thing is that this particular open market operation got such a big fanfare in the press. It's everywhere you look. Why? Usually this shit is page 73 stuff.
Does this work in a similar way to qe miw? I like the way they quote it in yuan. Makes it sound bigger.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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miw
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newjez
18 Sep 2014, 04:38 AM
Does this work in a similar way to qe miw? I like the way they quote it in yuan. Makes it sound bigger.
It is very similar to QE, except that the fed's QE is mostly long-dated instruments, whereas the PBOC OMOPs seem to be 3-month and shorter dated stuff.

BTW I am not trying to say it doesn't do anything. I think one of the articles mentioned that it was the same impact as reducing required reserves by 0.5%. That is not insignificant. But it is not fiscal stimulus in the sense that announcing more railway building would be.

EDIT: OK. I think I know why this is news and not page 72. It's because it is not standard open market operations where the PBOC goes out and does repos or reverse repos. What it is is a targeted CNY100B 3-month loan to each of the 5 big banks. It's essentially the same as if the bank went out and bought 100M worth of 3-month securities from each of the banks, but it is unconventional. Therefore it is news, and therefore the PBOC is trying to send a message.

EDIT EDIT: I doubt very much that it will have any impact on the spot price of iron ore.
Edited by miw, 18 Sep 2014, 05:38 AM.
The truth will set you free. But first, it will piss you off.
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Ex BP Golly
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All it seems to be doing is promoting that Chinese banks are as dodgy as any other countries banks.

You dont give banks a cool $90bn because they are doing good- right!

Of course. .....our banks are different. :lol
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miw
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Ex BP Golly
18 Sep 2014, 06:43 AM
All it seems to be doing is promoting that Chinese banks are as dodgy as any other countries banks.

You dont give banks a cool $90bn because they are doing good- right!

Of course. .....our banks are different. :lol
It's not giving the banks anything. All it does is swap 3-month money for zero-maturity money.

It is not unusual for the PBOC to loosen liquidity going into the golden week and tighten again after they come out.
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