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China: Mixed and confusing signals from the PBOC - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 22, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Tim Condon, Chief Economist at ING, suggests that China’s economic policy seems a likely prime topic for this weekend’s G20 FinMin and Central Bank Governors meeting, which coincidentally will be held in Shanghai.

    Key Quotes

    “On Friday the press reported that the PBOC had imposed bank-specific reserve requirements on banks that increased lending too rapidly in January. The PBOC then released a statement on its website the PBOC clarifying that it wasn’t punishing big-lending banks. Rather, it was lifting some targeted RRRs on banks that had been granted cuts in 2015 to encourage them to increase lending to the agricultural sector but had failed to deliver.

    The PBOC statement answers the question raised by the initial press report, how did the huge increase in credit in January occur if it wasn’t policy-driven? Answer: it was policy driven.

    There’s more confusion. On Friday the PBOC released the January data on sources and uses of credit funds, including the “Position for Forex Purchase,” which, prior to the release of monthly data on foreign exchange reserves, was widely used as a proxy. However, the January 2016 data marked a series break; it covered only the net foreign exchange purchases by the People’s Bank rather than those of all financial institutions. The data put PBOC net selling at US$360bn in January, far larger than the US$99bn decline in foreign exchange reserves.

    The old “Position for Forex Purchase” series included net buying by all financial institutions. The January data cover only the PBOC. Assuming there were no other changes, financial institutions excluding the PBOC were net buyers of US$260bn of foreign exchange in January.

    The data confusion will, we think, sustain elevated criticism of China’s economic policy transparency going into this weekend’s G20 FinMin and Central Bank Governors meeting. Last week’s January PPI data release, which underscored that deep PPI deflation persists, and the report that the CBRC will relax banks’ NPL provision coverage ratio point to another issue that may come up at the G20 meeting. Supply-side reform in China is not Anglo Saxon-style and Chinese producers are exporting deflation as they attempt to ease their financial straits.”
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