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PBOC drains $7.9B from financial system

  • The People's Bank of China has drained $7.9B from the country's financial system by selling 48B yuan in repurchase contracts, the first such transaction since June.
  • The PBOC made the tightening move after weekend data showed that aggregate financing soared to a record 2.58T yuan ($425B) in January from 1.23T yuan in December despite the bank's attempts to rein in lending.
  • Meanwhile, foreign-direct investment in China climbed 16.1% to $10.76B in January in an indication of continued confidence in the country's economy despite recent cooling,
  • Separately, the difference in the reported economic output between the national government and China's 31 provinces fell to 10.7% in 2013 from 11% in 2012. The regions' combined output was 62.9T yuan, topping the national figure by a still substantial 6.06T yuan. "Regional authorities are showing more realistic data," says Credit Agricole's Dariusz Kowalczyk. The figures "may reflect the change in emphasis in the assessment of regional authorities away from growth towards other factors, which reduced the incentive for them to inflate the numbers."
  • The Shanghai Composite ends -0.8%, while a financial index drops 2.1%.
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Comments (1)
  • Mike Holt
    , contributor
    Comments (1455) | Send Message
     
    How will this PBOC tightening of credit, together with Japan's increased competition for export revenues, affect financing for China's Fixed Asset Investment spending that now equals 50% of their GDP? And, how will that, in turn, affect commodity prices and economic activity in other emerging market countries that are already suffering from slower economic growth and reduced revenues from commodity exports?

     

    China may be able to contain its credit problems but countries relying upon exports to China that financed their growth through the issuance of bonds to foreign investors are in much more precarious positions.

     

    So far, this has led to an exodus of capital from emerging markets that has made its way into developed market equities, but will emerging markets pain = developed markets gain? Lower commodity prices translate into lower prices for consumers whose purchasing power is concentrated in developed countries, and efforts to rebalance China's economy may lead to increased Chinese demand for the types of products and services offered by companies in developed countries. But, a rebalancing of the Chinese economy will require a rebalancing of the global economy, and that can have other effects as well.
    18 Feb, 08:10 AM Reply Like
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