According to Cardinal Trading, the PBoC is reportedly injecting 500 billion yuan into China’s biggest banks in an effort to boost liquidity.
Tokyo, Japan – According to Tokyo based Cardinal Trading, fear of an economic slowdown has reportedly prompted the People’s Bank of China to begin injecting 500 billion yuan into the country’s largest banks in a bid to ward off the effects of weakening growth.
Chief economist at Cardinal Trading, Johannes Feinberg said, “The PBoC, like its European counterpart, the ECB, is a late arrival to the quantitative easing party that the central banks of the US, Great Britain and Japan have been at for some years now but China is in a better position fiscally than any of those countries.”
China’s stimulus will apparently focus on the central bank granting short-term loans over 1 to 3 months to commercial banks that will be instructed to lend to businesses in targeted sectors.
“They usually reduce the RRR (reserve requirement ratio) but that typically finds its way into real estate, a sector the authorities are trying to cool. This time, they seem to be trying to cut costs for preferred borrowers. They’re already cleaning house within the so-called shadow banking sector in which many commercial banks hold assets completely off-balance sheet,” explained Feinberg.
Shadow banking refers to assets and products offered by “trust companies” which seek funding from wealthy individuals and cash-rich corporations in return for higher returns that can be achieved within the mainstream banking system. These funds are then lent to companies and local government entities at higher rates than commercial banks charge.
Cardinal Trading says it remains confident that China will not suffer a hard economic landing but expects annual growth to come in at less than the 7.5% target set by the Chinese government.
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