BEIJING- China’s central bank injected 900 billion yuan ($124.3 billion) into the banking system on Monday via one-year policy loans, as local governments step up selling bonds to ease debt burdens.
The People’s Bank of China (PBOC) lent the medium-term facility (MLF) loans to financial institutions at 2 percent, the central bank said in a statement. The PBOC conducts MLF operations toward the end of each month.
China’s banking system faces increasing liquidity pressure toward year-end, with local government bond issuance up sharply as Beijing steps up efforts to reduce debt risks and stimulate the struggling economy.
November issuance is expected to exceed 1.3 trillion yuan ($179.4 billion), the biggest monthly volume in a year, Reuters estimates.
“Liquidity may face some pressure this week due to maturing reverse repos, increasing bond issuance and month-end volatility in cash demand,” Citic Securities said in a note.
The PBOC is increasingly likely to reduce banks’ reserve requirements toward the year-end to ease liquidity pressure, the official China Securities Journal reported on Monday.
Investors hoping China would announce extra fiscal buffers for an economy girding for another Donald Trump presidency were disappointed last week.
China’s top legislative body, the standing committee of the National People’s Congress (NPC), did as was expected, approving bills to allow local governments to allocate 10 trillion yuan ($1.40 trillion) towards reducing off-balance sheet, or “hidden”, debt.
But investors had built their anticipation around the timing of the NPC and Trump’s win just a couple of days earlier, and hence expectations of something special to pre-empt another round of fractious Sino-US tensions and trade barriers.
“I think markets are on the disappointed side as there were rumours that the policy could be larger if Trump won the US election,” said Lynn Song, ING’s chief economist for Greater China.
Reuters had reported last week authorities were considering a more than 10 trillion yuan ($1.4 trillion) plan to boost growth and help local governments address debt risks.
After confirming that on Friday, Finance Minister Lan Foan signalled that more stimulus would come.
Analysts say China needs to do more to support consumers as the world’s second-largest economy tackles a property market downturn and weak confidence, and meet the Communist leadership’s 5 percent growth goal.
Donald Trump’s return to the White House could bring fresh headwinds. Among other things, Trump has vowed to adopt blanket 60 percent tariffs on US imports of Chinese goods.
“It is going to disappoint the market because China needs more essentially,” said UBP’s Asia senior economist Carlos Casanova.
Casanova said China needs a 23 trillion yuan package to resolve the local debt and property problems, which is about 15 percent of its economy, and is probably “going to hold back some of that fire power until they have a better idea of what President Trump is planning”.
Investors who had been waiting to hear from the Standing Committee may also now move decisively to position for a second Trump presidency.
So far, selling has been limited to exporters and even that has been relatively modest, with stock markets in Shanghai and Hong Kong logging their best week in a month on Friday. Trump’s threats of high tariffs seem so far to have been viewed as negotiable, and China’s economy is seen as more insulated to trade restrictions than it was eight years ago.