The central bank of the Communist Party of China repatriated funds for four consecutive days from Jan. 25 to Jan. 28. Investors are worried that the CCP’s monetary policy may start to tighten and the stock market will be under pressure. On Thursday, all three major indices of the Chinese stock market plunged, and the market capitalization evaporated 1.9 trillion on the same day.
The central bank of the Communist Party of China (CPC) retrenched funds for four consecutive days
In the morning of Jan. 28, the central bank of the Communist Party of China announced that it would conduct 100 billion yuan of reverse repurchase operations by way of interest rate bidding. On the same day, 250 billion yuan of reverse repo expired, netting back 150 billion yuan. The reverse repo period of 7 days, the winning volume of 100 billion yuan, the winning rate of 2.2% unchanged from the last Time.
From Monday to Thursday (Jan. 25 to Jan. 28), the CPC central bank netted back 568.5 billion yuan in four days.
Reuters reported on January 28 that the weighted overnight repo rate in the interbank market rose to a new six-year high near 3.04% in early trading and approached the upper limit of the overnight standing lending facility (SLF) rate corridor, indicating that the liquidity crunch has been quite obvious; the tight funding has also intensified the decline of short and medium-term bonds in the bond market.
The Financial Times’ Lex column commented that the CCP’s central bank’s water-tightening move comes just before the Chinese New Year, when a lot of money is spent on goods and travel, and is well-timed, as further tightening will hit Chinese stocks.
The column notes that excess liquidity has pushed the CSI300 index, which covers stocks listed in Shanghai and Shenzhen, up 56% from its March 2020 low. The rally has attracted a record amount of foreign investor money, and they will be the first to leave at the first sign of liquidity pressure.
China’s three major stock indexes are all down
China’s A-share market saw a significant correction after the Communist Party’s central bank continuously “pumped” water, causing investors to worry that liquidity may turn from here.
By the end of the day, the Shanghai Stock Exchange Index fell 1.91% to close at 3505 points, the Shenzhen Stock Exchange Index fell 3.25% to close at 14,913 points, and the Growth Enterprise Market Index fell 3.63% to close at 3161 points, with the market value of A-shares evaporating by 1.9 trillion.
Northbound funds (foreign capital) unilaterally net sold 6.405 billion yuan throughout the day, a single-day net selling amount hitting a new high in more than three months.
A few days ago, Ma Jun, a member of the Monetary Policy Committee of the Central Bank of the Communist Party of China and director of the Center for Finance and Development Studies at Tsinghua University, said at an official symposium that bubbles have emerged in some areas in China, with several major stock market indices rising sharply last year, close to 30 percent, and that such a bull market cannot be unrelated to the currency when economic growth has fallen sharply.
Ma Jun said, “Whether this situation will intensify in the future depends on whether monetary policy is going to make a moderate turn this year. If it does not turn, these problems will certainly continue and will lead to greater economic and financial risks in the medium and long term.”
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