Thanks for the break down on this. Bitcoin has barely budged on this news. I would have thought there would be some type of positive reaction. And the local stock market only up about 1-3 %. What would be a better solution to this deflation trap?
For those of you who might be interested, below is a cheat sheet of sorts regarding the announced policy change by the Chinese PBoC. Shout out to the team here at Z-Ben Advisors. They do all the heavy lifting. I'm nothing more than a glorified salesman.
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The announcement measures include:
1. 50bps cut on RRR. A further 25 to 50bps cut before the end of the year will be depending on economic conditions.
2. 20bps cut on 7-day repo rate.
3. A new stock market support facility (a swap program with brokers, insurers, FMCs for A-share investments); a special-purpose relending program for the banks to provide lending to listed companies and their major shareholders for buybacks.
4. 50bps cut on the outstanding mortgage rate. The downpayment ratio for second home is cut to 15% from 25%.
5. CSRC to announce supportive policies on long-term capital’s A-share investments and listed companies’ M&A activities.
6. CSRC to further optimize equity fund registration and promote broad market-based passive fund innovation.
7. NFRA to arrange the core tier-1 capital increase of the 6 large banks.
8. NFRA to expand its commercial banks’ subsidiary financial institutions’ equity investment pilot.
9. PBoC to support commercial banks buying land from property developers.
10. Optimizing the affordable housing relending program. PBoC’s share of capital commitment in the 300bn program is increased to 100% from 60%.
11. Corporate lending renewal policies.
Not a material change to the monetary policy framework.
Nothing on property developer bailout.
The A-share market support facility is interesting, but we need to wait for the actual rules, which will specify its size and terms. But this should further boost the ETFs.
NFRA’s bank capital increase and CSRC’s M&A encouragement are the things to watch.
Will see if MoF will do a heavyweight press conference soon.
Edit: Pan added just now: as for the swap facility with brokers, insurers and FMCs, the phase-one quota is RMB500bn. Accepted collateral include bond, equity ETF and CSI300 index’s underlying stocks. Institutions will receive treasuries and central bank notes for A-share investments. PBoC is open to further expansion of the facility.
Pan also said they are studying the possibility of a stabilization fund when answering a reporter.
CSRC chairman said CSRC will further support Central Huijin’s buying.
Discussion
I would have thought the same., although the Chinese and Hong Kong markets ended the day +4%.
For Bitcoin I'd wait until the US begins its cash trading day before casting judgement. Check price action in 12 hours from now. That'll provide a better barometer of what, if any, impact might have come from the move by the PBoC
As for a "solution" to the deflation you mentioned, well, it has been my ongoing outlook that deflation is what Chinese policy makers are will to accept to aggressively deleverage its economy.
Furthermore, I view it as critical that all we have out of China today is monetary policy loosening. Basically a liquidity pump. There's been virtually no fiscal support out of Beijing for a long while. Moving on fiscal policy is the last bullet in the chamber so to speak. Beijing doesn't want to use that bullet. Unclear if they have a choice.
Thanks for asking.