As the New Year draws to a close, the Communist Party of China’s central bank is pumping 320 billion yuan from the market.
As the year-end approaches, the Communist Party of China’s central bank is pulling hundreds of billions of yuan from the market, in contrast to its usual operation of releasing liquidity before the New Year, which is considered unusual by the media.
Taiwan‘s Liberty Times reported on February 8, citing the Nihon Keizai Shimbun, that the CCP’s central bank withdrew 320 billion yuan from the financial market in the last two weeks, a move that is different from previous years.
Feb. 12 is the Chinese New Year, the Year of the Ox. In general, the CCP central bank will increase liquidity injection before the Chinese New Year to meet the market demand for funds. For example, in 2020 the CCP central bank injected RMB 600 billion into the market in just one week before the Chinese New Year, and in 2019 it also released RMB 500 billion before the New Year.
Japanese media reported that on Friday (Feb. 5), the CCP central bank promised to release 100 billion yuan into the market before the Chinese New Year holiday, but market liquidity did not increase as 100 billion yuan of reverse repos expired that day.
Due to the tight funding situation, the overnight bank rate was close to 3% in the last two weeks, which is a high level. in late January, the overnight rate once soared to 6%.
In response to the CCP central bank’s tightening of market funding instead of releasing liquidity before the New Year, Founder Securities analyst Qi Sheng believes the CCP central bank’s motivation for reducing liquidity should be “to prevent property and stock prices from rising excessively and to reduce credit risks in the future.”
A researcher at a state-owned think tank said that “the [Communist] government does not want housing prices to keep rising” and that it is “politically unacceptable” for prices to keep rising.
The Communist Party has a long history of regulating real estate, with General Secretary Xi Jinping saying in 2017 that “houses are for living, not for speculation.
In addition to Xi Jinping, in recent times, senior Communist Party officials have made frequent statements about risks such as the “gray rhinoceros” in real estate.
On November 30, 2020, Guo Shuqing, Chairman of the CBRC, said that real estate is the biggest “gray rhinoceros” of financial risks in China at this stage.
On December 3, 2020, Vice Premier Han Zheng said at a symposium held by the Ministry of Housing and Urban-rural Development that real estate should not be used as a means to stimulate the economy in the short term, and that the string of real estate market regulation should be tightened at all times. This is reportedly the second Time in four months that Han has held a forum on real estate issues.
The Wall Street Journal reported that China’s real estate sector, at $52 trillion, is facing a bubble of epic proportions.
Japanese media reported that China is tightening restrictions on property sales in more than 30 cities starting in the summer of 2020 to prevent a real estate bubble, including limiting the number of homes a Family can buy.
In late December 2020, China’s central bank issued new rules to limit bank lending to developers and set a ceiling on the balance of Home mortgages as a percentage of total loans, in an attempt to cool China’s property market by limiting bank lending to real estate and setting “three red lines” for real estate companies to curb their expansion.
In recent weeks, the Chinese government has taken further measures to control the real estate sector, specifically through debt.
In addition, the CCP has interviewed self-publishers, banning them from making statements about the housing market and forbidding them from predicting policy directions.
Data show that China’s resident leverage ratio has exceeded more than 60% in 2020. According to international standards, once the leverage ratio of residents reaches 70%, there will be a financial turmoil and subprime mortgage crisis.
According to Zhang Ping, a Chinese financial commentator, Chinese residents have bet almost all of their assets on real estate, which poses a great risk.
Zhang Ping said that the number of foreclosed houses in China doubled in 2020 compared to 2019, increasing by nearly 500,000 units, of which, most of them were abandoned by owners who broke their mortgage payments, and then the banks commissioned the courts to go to auction; not long ago, more than 300 buildings in Hefei city broke their mortgage payments for sale.
Zhang Ping quoted Wu Xiaoling, a Chinese financier and former deputy governor of the central bank, as saying that the scale of China’s real estate, at 430 trillion yuan, has become the “Sword of Damocles” hanging over the Chinese economy, and that once real estate collapses, it will directly lead to the collapse of China’s bubble economy.
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