Alert – Cash Running Low as October Holiday Approaches.
After the Mid-Autumn Festival, it’s the last week of
September and China will have the October Holiday
in the following week. But cash runs low in the markets again.
To ease the cash squeeze, China Central Bank injected funds
on September 24, and launched a six-day reverse repurchase
agreement (repos) which is 88 billion RMB in total.
In addition, the housing market turnover rose from August
in the first and second tiers cities, and property prices
continue to soar very high.
The banks are suddenly putting the brakes on, all across the board.
What’s the reason behind the cash flow shortage? Is the cash shortage
ended? Let’s see the report!
To anticipate the upcoming October Holiday, China Central
Bank changed the routine seven-day repos into six-day on
September 24 and launched 88 billion RMB’s purchasing.
This is the biggest repos in 8 weeks since it restarted
the repos at the end of July.
Some analysts believed that China Central Bank is worried
that the cash shortage will happen again, and has acted to
maintain sufficient liquidity in the market.
This is the intention of the Central Bank’s approach:
“Inject funds to solve cash squeeze before the holiday".
Mao Shoulong is Director of the Institute of Administrative
Sciences, China People’s University and a political PhD.
of Peking University.
He said that the debts of China』s Local Governments is absorbing
the funds, and the governments apply for new debts to pay
for the old ones.
Also, the debts in the housing market are huge and the funds
cannot be circulated and recycled in time.
Mao Shoulong, Director of the Institute of Administrative
Sciences, China People’s University:
“Particularly the administration of the pool of funds: the bank
is using individual deposits, especially the demand deposits to
create a capital chain that can be used for investment in
activities which is not a loan and does not need supervision.
In this scenario, the interest on debt is low but the interest
on credit is high although the risk is very high.
In the holiday season, many individuals will withdraw their cash
which exposes the cash shortage. This is the reason for the cash
shortage happening in China."
The Hong Kong “Economic Daily" quoted “the 24th News
Flash of Economic News Agency":
Reported that the monthly interests among Shanghai Banking
industrial is very high before this October Holiday, which is over 6%.
The financial stocks are leading the falling index, the stocks of
the banks and securities are falling overall. Interbank offered rate
refers to the interbank lending rates for short-term funds.
Mao Shoulong analyzed that the cash shortage of the banks
will lead to a short-term interests rise.
Mao Shoulong:"Once the interest rate rises, people will
lose confidence in the economy. In some places, there will
be squeezes, particularly in such fields like pensions."
In addition, according to an insider of the banking industry:
the banking industry had been rumored one week before the
Mid-Autumn Festival that it has suspended new and
second-hand housing loans, consumer loans and
business type loans.
China media reported, that recently many new housing
projects were sold out in the opening day in Beijing,
Guangzhou and other cities.
“One Day Sold Project" is happened frequently. According to
the “New Housing Market Monthly Report"by Central Plains
Research Center Group:
The first-tier cities, experienced an overall decrease in July.
Trading increased dramatically in August. The cumulative trading
volume increased by 15.4% compared with July.
In the third and fourth tier cities, the cumulative trading volume
increased by 6.8%.
The housing market is so hot,
why suspend the housing loans so suddenly?
Xie Tian, Professor at University of South Carolina-Aiken,
analyzed the reasons why Chinese banks suspended
It’s based on the loan risks and cash shortage in state-owned
banks. They are afraid that Li Keqiang, the Chinese Premier will
suspend support from the state-owned banks and state-
owned real estate companies.
This will lead to problems in their future cash flow.
Xie Tian, Professor at University of South Carolina-Aiken:
“For banks, in fact some Chinese banks know exactly
where their risks lie, more than others.
They are very clear about the risks of the real estate bubble.
But they have their insider perks, and hope that the
bubble keeps on growing for their own interests and their
Xie Tian said that the cash shortage of the state-owned banks
will finally lead to them tightening cash flow, and tighten up
the loan control.
Once these loans and investments are restricted, the housing
boom will definitely lose support.
And that is the scariest time for everybody.
Mao Shoulong also pointed out that the so-called
cash shortage is another name for financial crisis.