19 August 2019
Chinese Yuan Bank Note Images

The Big Picture: CASH SQUEEZE

The Shanghai stock market’s benchmark index fell 0.7 percent to close at 1,991.25 points on Monday, the weakest level in six months, as a jump in money-market rates fueled concerns about the liquidity situation at banks. The financial sector also came under pressure on speculation that the banking regulator may soon launch some measures to curb shadow banking, traders said.

The overnight Shanghai interbank offered rate (SHIBOR) jumped 107.1 basis points to 3.888 percent on Monday, while the one-week rate was up 155.3 basis points at 6.329 percent. The sudden increase in the interbank rates indicated that liquidity has become tighter in the market as banks were preparing to meet the rising demand for cash ahead of the Chinese New Year. 

China Construction Bank (00939.HK, 601939.CN) saw its shares decline 0.76 percent to 3.9 yuan (63.9 US cents), the lowest in 16 months, while Industrial and Commercial Bank of China (01398.HK, 601398.CN) fell 0.29 percent to 3.4 yuan, the weakest since the global financial crisis in September 2008.

Following the rise in money-market rates, the People’s Bank of China provided emergency cash to large commercial banks on Monday and is set to inject more liquidity into the market through reverse repos on Tuesday as it seeks to maintain the stability of the monetary system.

However, banking stocks may not be able to regain ground in the short term as there is talk that regulators may announce new measures to curb shadow banking activities.  

The State Council has completed the draft of a set of new rules to curb shadow banking and will launch it soon, Caijing magazine reported on Monday. The draft was prepared by a vice-chairman of the China Banking Regulatory Commission during the second half of last year, the report said.

Another factor that will weigh on the financial sector is the nation’s slower economic growth. Some economists expect China’s gross domestic product growth to slow to between 7.0 and 7.5 percent this year from 7.7 percent in 2013, which was the lowest in 14 years. The National Bureau of Statistics released the 2013 GDP figure yesterday.

PBoC launches short-term liquidity support

The People’s Bank of China has offered short-term liquidity to small and medium financial institutions in 10 branches starting Monday. City commercial banks, rural banks, rural cooperative banks and credit cooperatives will benefit from the trial scheme, the central bank said. The duration of the liquidity support is up to 14 days. Banks are required to present treasury bills, central bank bills and investment grade corporate bonds as collateral. The 10 PBoC branches in the scheme are in Beijing, Jiangsu, Shandong, Guangdong, Hebei, Shanxi, Zhejiang, Jilin, Henan and Shenzhen.

Beijing may have lifted price curb on high-end homes

Three new high-end housing projects that were recently granted pre-sale permits by the Beijing land resources authority are marketing the units at as high as 77,913 yuan (US$12,875) per square meter, suggesting that the price ceiling set by the authority last year is no longer in effect, China Securities Journal reported Tuesday. The authority set a rule last year that no pre-sale permit will be given to projects that have a selling price of more than 40,000 yuan per square meter. Some analysts were quoted as saying that there is more upward pressure on home prices, and that local authorities may implement price curb again.

–Contact HKEJ at [email protected]



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